Correlation Between Diamond Hill and United States

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

Diversification Opportunities for Diamond Hill and United States

-0.63
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Diamond and United is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and United States Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Oil and Diamond Hill 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 Diamond Hill Investment are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Oil has no effect on the direction of Diamond Hill i.e., Diamond Hill and United States go up and down completely randomly.

Pair Corralation between Diamond Hill and United States

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 1.25 times more return on investment than United States. However, Diamond Hill is 1.25 times more volatile than United States Oil. It trades about 0.17 of its potential returns per unit of risk. United States Oil is currently generating about 0.2 per unit of risk. If you would invest  14,527  in Diamond Hill Investment on December 29, 2023 and sell it today you would earn a total of  775.00  from holding Diamond Hill Investment or generate 5.33% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Diamond Hill Investment  vs.  United States Oil

 Performance 
       Timeline  
Diamond Hill Investment 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
United States Oil 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in United States Oil are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, United States displayed solid returns over the last few months and may actually be approaching a breakup point.

Diamond Hill and United States Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diamond Hill and United States

The main advantage of trading using opposite Diamond Hill and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Hill position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' long position.
The idea behind Diamond Hill Investment and United States Oil 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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