Correlation Between Moderate Balanced and Davis Government

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

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

Diversification Opportunities for Moderate Balanced and Davis Government

0.87

Correlation Coefficient

Moderate Balanced  Davis Government

Very poor diversification

The 3 months correlation between Moderate and Davis is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Moderate Balanced Allocation 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 Moderate Balanced 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 Moderate Balanced Allocation 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 Moderate Balanced i.e., Moderate Balanced and Davis Government go up and down completely randomly.

Pair Corralation between Moderate Balanced and Davis Government

Assuming the 90 days horizon Moderate Balanced Allocation is expected to generate 3.06 times more return on investment than Davis Government. However, Moderate Balanced is 3.06 times more volatile than Davis Government Bond. It trades about 0.19 of its potential returns per unit of risk. Davis Government Bond is currently generating about 0.16 per unit of risk. If you would invest  1,213  in Moderate Balanced Allocation on May 14, 2025 and sell it today you would earn a total of  61.00  from holding Moderate Balanced Allocation or generate 5.03% return on investment over 90 days.

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

Moderate Balanced Allocation  vs.  Davis Government Bond

Moderate Balanced

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Moderate Balanced Allocation are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Moderate Balanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 12 (%) 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 Moderate Balanced and Davis Government

The main advantage of trading using opposite Moderate Balanced and Davis Government positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderate Balanced 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 Moderate Balanced Allocation 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.