Correlation Between Davis New and Washington Mutual

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Can any of the company-specific risk be diversified away by investing in both Davis New and Washington Mutual 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 New and Washington Mutual into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Davis New York and Washington Mutual Investors, you can compare the effects of market volatilities on Davis New and Washington Mutual 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 New with a short position of Washington Mutual. Check out your portfolio center. Please also check ongoing floating volatility patterns of Davis New and Washington Mutual.

Diversification Opportunities for Davis New and Washington Mutual

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Davis and Washington is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding DAVIS NEW YORK and WASHINGTON MUTUAL INVESTORS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Mutual and Davis New 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 New York are associated (or correlated) with Washington Mutual. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Mutual has no effect on the direction of Davis New i.e., Davis New and Washington Mutual go up and down completely randomly.

Pair Corralation between Davis New and Washington Mutual

Assuming the 90 days horizon Davis New York is expected to generate 1.29 times more return on investment than Washington Mutual. However, Davis New is 1.29 times more volatile than Washington Mutual Investors. It trades about 0.23 of its potential returns per unit of risk. Washington Mutual Investors is currently generating about 0.28 per unit of risk. If you would invest  2,319  in Davis New York on December 29, 2023 and sell it today you would earn a total of  83.00  from holding Davis New York or generate 3.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.65%
ValuesDaily Returns

DAVIS NEW YORK  vs.  WASHINGTON MUTUAL INVESTORS

 Performance 
       Timeline  
Davis New York 

Risk-Adjusted Performance

16 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Davis New York are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Davis New may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Washington Mutual 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Washington Mutual Investors are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Washington Mutual may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Davis New and Washington Mutual Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Davis New and Washington Mutual

The main advantage of trading using opposite Davis New and Washington Mutual positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Davis New position performs unexpectedly, Washington Mutual 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 Washington Mutual will offset losses from the drop in Washington Mutual's long position.
The idea behind Davis New York and Washington Mutual Investors 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.
Check out your portfolio center.
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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