Correlation Between Diamond Hill and Invesco Energy

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

By analyzing existing cross correlation between Diamond Hill Short and Invesco Energy Fund, you can compare the effects of market volatilities on Diamond Hill and Invesco Energy 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 Invesco Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Invesco Energy.

Diversification Opportunities for Diamond Hill and Invesco Energy

0.66

Correlation Coefficient

Diamond Hill  Invesco Energy

Poor diversification

The 3 months correlation between Diamond and Invesco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Short and Invesco Energy Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Energy 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 Short are associated (or correlated) with Invesco Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Energy has no effect on the direction of Diamond Hill i.e., Diamond Hill and Invesco Energy go up and down completely randomly.

Pair Corralation between Diamond Hill and Invesco Energy

Assuming the 90 days horizon Diamond Hill is expected to generate 7.52 times less return on investment than Invesco Energy. But when comparing it to its historical volatility, Diamond Hill Short is 11.19 times less risky than Invesco Energy. It trades about 0.15 of its potential returns per unit of risk. Invesco Energy Fund is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Invesco Energy Fund on September 13, 2024 and sell it today you would earn a total of  159.00  from holding Invesco Energy Fund or generate 6.68% return on investment over 90 days.

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

Diamond Hill Short  vs.  Invesco Energy Fund

Diamond Hill Short

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Short are ranked lower than 11 (%) 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.

Invesco Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Energy Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Invesco Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diamond Hill and Invesco Energy

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

The idea behind Diamond Hill Short and Invesco Energy Fund 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.