Correlation Between Utilities Fund and Diamond Hill

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

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

Diversification Opportunities for Utilities Fund and Diamond Hill

0.1

Correlation Coefficient

Utilities Fund  Diamond Hill

Average diversification

The 3 months correlation between Utilities and Diamond is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Utilities Fund Investor 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 Utilities Fund 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 Utilities Fund Investor 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 Utilities Fund i.e., Utilities Fund and Diamond Hill go up and down completely randomly.

Pair Corralation between Utilities Fund and Diamond Hill

Assuming the 90 days horizon Utilities Fund Investor is expected to generate 1.07 times more return on investment than Diamond Hill. However, Utilities Fund is 1.07 times more volatile than Diamond Hill Small Mid. It trades about 0.41 of its potential returns per unit of risk. Diamond Hill Small Mid is currently generating about 0.07 per unit of risk. If you would invest  1,546  in Utilities Fund Investor on February 26, 2024 and sell it today you would earn a total of  122.00  from holding Utilities Fund Investor or generate 7.89% return on investment over 90 days.

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

Utilities Fund Investor  vs.  Diamond Hill Small Mid

Utilities Fund Investor

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Utilities Fund Investor are ranked lower than 24 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Utilities Fund showed solid returns over the last few months and may actually be approaching a breakup point.

Diamond Hill Small

Risk-Adjusted Performance

1 of 100

Very 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 Utilities Fund and Diamond Hill

The main advantage of trading using opposite Utilities Fund and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Utilities Fund 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 Utilities Fund Investor 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.