Correlation Between Davis Financial and Basic Materials

Can any of the company-specific risk be diversified away by investing in both Davis Financial and Basic Materials at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Davis Financial and Basic Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Davis Financial Fund and Basic Materials Ultrasector, you can compare the effects of market volatilities on Davis Financial and Basic Materials and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Davis Financial with a short position of Basic Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis Financial and Basic Materials.

Diversification Opportunities for Davis Financial and Basic Materials

0.71

Correlation Coefficient

Davis Financial  Basic Materials

Poor diversification

The 3 months correlation between Davis and Basic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Davis Financial Fund and Basic Materials Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Materials Ultr and Davis Financial is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Davis Financial Fund are associated (or correlated) with Basic Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Materials Ultr has no effect on the direction of Davis Financial i.e., Davis Financial and Basic Materials go up and down completely randomly.

Pair Corralation between Davis Financial and Basic Materials

Assuming the 90 days horizon Davis Financial Fund is expected to generate 0.59 times more return on investment than Basic Materials. However, Davis Financial Fund is 1.7 times less risky than Basic Materials. It trades about 0.11 of its potential returns per unit of risk. Basic Materials Ultrasector is currently generating about 0.06 per unit of risk. If you would invest  7,212  in Davis Financial Fund on May 14, 2025 and sell it today you would earn a total of  387.00  from holding Davis Financial Fund or generate 5.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Davis Financial Fund  vs.  Basic Materials Ultrasector

Davis Financial

Risk-Adjusted Performance

Fair

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Financial Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Basic Materials Ultr

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Basic Materials Ultrasector are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Basic Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davis Financial and Basic Materials

The main advantage of trading using opposite Davis Financial and Basic Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis Financial position performs unexpectedly, Basic Materials can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Basic Materials will offset losses from the drop in Basic Materials' long position.

The idea behind Davis Financial Fund and Basic Materials Ultrasector pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.