Correlation Between Amazon and Diamond Hill

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

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

Diversification Opportunities for Amazon and Diamond Hill

0.92

Correlation Coefficient

Amazon  Diamond Hill

Almost no diversification

The 3 months correlation between Amazon and Diamond is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Diamond Hill All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill All and Amazon 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 Amazon Inc 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 All has no effect on the direction of Amazon i.e., Amazon and Diamond Hill go up and down completely randomly.

Pair Corralation between Amazon and Diamond Hill

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Diamond Hill. In addition to that, Amazon is 1.71 times more volatile than Diamond Hill All. It trades about -0.12 of its total potential returns per unit of risk. Diamond Hill All is currently generating about -0.07 per unit of volatility. If you would invest  2,387  in Diamond Hill All on December 29, 2024 and sell it today you would lose (113.00) from holding Diamond Hill All or give up 4.73% of portfolio value over 90 days.

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

Amazon Inc  vs.  Diamond Hill All

Amazon Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Diamond Hill All

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill All has generated negative risk-adjusted returns adding no value to fund investors. 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 Amazon and Diamond Hill

The main advantage of trading using opposite Amazon and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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 Amazon Inc and Diamond Hill All 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.