Correlation Between Unconstrained Emerging and Davis Government

Can any of the company-specific risk be diversified away by investing in both Unconstrained Emerging and Davis Government 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 Unconstrained Emerging and Davis Government into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Unconstrained Emerging Markets and Davis Government Bond, you can compare the effects of market volatilities on Unconstrained Emerging and Davis Government 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 Unconstrained Emerging with a short position of Davis Government. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unconstrained Emerging and Davis Government.

Diversification Opportunities for Unconstrained Emerging and Davis Government

0.95

Correlation Coefficient

Unconstrained Emerging  Davis Government

Almost no diversification

The 3 months correlation between Unconstrained and Davis is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Unconstrained Emerging Markets and Davis Government Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Government Bond and Unconstrained Emerging 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 Unconstrained Emerging Markets are associated (or correlated) with Davis Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Government Bond has no effect on the direction of Unconstrained Emerging i.e., Unconstrained Emerging and Davis Government go up and down completely randomly.

Pair Corralation between Unconstrained Emerging and Davis Government

Assuming the 90 days horizon Unconstrained Emerging Markets is expected to generate 1.81 times more return on investment than Davis Government. However, Unconstrained Emerging is 1.81 times more volatile than Davis Government Bond. It trades about 0.4 of its potential returns per unit of risk. Davis Government Bond is currently generating about 0.18 per unit of risk. If you would invest  524.00  in Unconstrained Emerging Markets on May 18, 2025 and sell it today you would earn a total of  35.00  from holding Unconstrained Emerging Markets or generate 6.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Unconstrained Emerging Markets  vs.  Davis Government Bond

Unconstrained Emerging

Risk-Adjusted Performance

High

Compared to the overall equity markets, risk-adjusted returns on investments in Unconstrained Emerging Markets are ranked lower than 31 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Unconstrained Emerging may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Davis Government Bond

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Davis Government Bond are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davis Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Unconstrained Emerging and Davis Government

The main advantage of trading using opposite Unconstrained Emerging and Davis Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unconstrained Emerging position performs unexpectedly, Davis Government 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 Davis Government will offset losses from the drop in Davis Government's long position.

The idea behind Unconstrained Emerging Markets and Davis Government Bond 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.