Correlation Between Diamond Hill and Crimson Wine

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

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

Diversification Opportunities for Diamond Hill and Crimson Wine

0.76

Correlation Coefficient

Diamond Hill  Crimson Wine

Poor diversification

The 3 months correlation between Diamond and Crimson is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Crimson Wine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crimson Wine 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 Investment are associated (or correlated) with Crimson Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crimson Wine has no effect on the direction of Diamond Hill i.e., Diamond Hill and Crimson Wine go up and down completely randomly.

Pair Corralation between Diamond Hill and Crimson Wine

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 0.92 times more return on investment than Crimson Wine. However, Diamond Hill Investment is 1.08 times less risky than Crimson Wine. It trades about -0.03 of its potential returns per unit of risk. Crimson Wine is currently generating about -0.13 per unit of risk. If you would invest  14,867  in Diamond Hill Investment on December 20, 2024 and sell it today you would lose (401.00) from holding Diamond Hill Investment or give up 2.7% of portfolio value over 90 days.

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

Diamond Hill Investment  vs.  Crimson Wine

Diamond Hill Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Crimson Wine

Risk-Adjusted Performance

Very Weak

Over the last 90 days Crimson Wine has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Diamond Hill and Crimson Wine

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

The idea behind Diamond Hill Investment and Crimson Wine 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.