Correlation Between Blue Diamond and American Diversified

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

By analyzing existing cross correlation between Blue Diamond Ventures and American Diversified Holdings, you can compare the effects of market volatilities on Blue Diamond and American Diversified 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 Blue Diamond with a short position of American Diversified. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Diamond and American Diversified.

Diversification Opportunities for Blue Diamond and American Diversified

0.13

Correlation Coefficient

Blue Diamond  American Diversified

Average diversification

The 3 months correlation between Blue and American is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Blue Diamond Ventures and American Diversified Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Diversified and Blue Diamond 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 Blue Diamond Ventures are associated (or correlated) with American Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Diversified has no effect on the direction of Blue Diamond i.e., Blue Diamond and American Diversified go up and down completely randomly.

Pair Corralation between Blue Diamond and American Diversified

Given the investment horizon of 90 days Blue Diamond Ventures is expected to generate 2.86 times more return on investment than American Diversified. However, Blue Diamond is 2.86 times more volatile than American Diversified Holdings. It trades about 0.14 of its potential returns per unit of risk. American Diversified Holdings is currently generating about 0.0 per unit of risk. If you would invest  0.02  in Blue Diamond Ventures on December 28, 2024 and sell it today you would lose (0.01) from holding Blue Diamond Ventures or give up 50.0% of portfolio value over 90 days.

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

Blue Diamond Ventures  vs.  American Diversified Holdings

Blue Diamond Ventures

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Blue Diamond Ventures are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Blue Diamond showed solid returns over the last few months and may actually be approaching a breakup point.

American Diversified

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Diversified Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, American Diversified is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Blue Diamond and American Diversified

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

The idea behind Blue Diamond Ventures and American Diversified Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.