Correlation Between Small Cap and Diamond Hill

Can any of the company-specific risk be diversified away by investing in both Small Cap and Diamond Hill 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 Small Cap and Diamond Hill into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Value and Diamond Hill Small Mid, you can compare the effects of market volatilities on Small Cap and Diamond Hill 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 Small Cap with a short position of Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Diamond Hill.

Diversification Opportunities for Small Cap and Diamond Hill

0.0

Correlation Coefficient

Small Cap  Diamond Hill

Pay attention - limited upside

The 3 months correlation between Small and Diamond is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Value and Diamond Hill Small Mid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Small and Small Cap 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 Small Cap Value are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Small has no effect on the direction of Small Cap i.e., Small Cap and Diamond Hill go up and down completely randomly.

Pair Corralation between Small Cap and Diamond Hill

If you would invest  1,038  in Small Cap Value on February 26, 2024 and sell it today you would earn a total of  11.00  from holding Small Cap Value or generate 1.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Small Cap Value  vs.  Diamond Hill Small Mid

Small Cap Value

Risk-Adjusted Performance

4 of 100

Insignificant

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

Diamond Hill Small

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Small Mid are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Diamond Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and Diamond Hill

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

The idea behind Small Cap Value and Diamond Hill Small Mid 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.