Correlation Between Diamond Hill and Eagle Point

Can any of the company-specific risk be diversified away by investing in both Diamond Hill and Eagle Point 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 Eagle Point 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 Eagle Point Credit, you can compare the effects of market volatilities on Diamond Hill and Eagle Point 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 Eagle Point. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Eagle Point.

Diversification Opportunities for Diamond Hill and Eagle Point

0.73

Correlation Coefficient

Diamond Hill  Eagle Point

Poor diversification

The 3 months correlation between Diamond and Eagle is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Eagle Point Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Point Credit 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 Eagle Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Point Credit has no effect on the direction of Diamond Hill i.e., Diamond Hill and Eagle Point go up and down completely randomly.

Pair Corralation between Diamond Hill and Eagle Point

Given the investment horizon of 90 days Diamond Hill is expected to generate 1.04 times less return on investment than Eagle Point. In addition to that, Diamond Hill is 2.85 times more volatile than Eagle Point Credit. It trades about 0.06 of its total potential returns per unit of risk. Eagle Point Credit is currently generating about 0.18 per unit of volatility. If you would invest  2,245  in Eagle Point Credit on September 13, 2024 and sell it today you would earn a total of  150.38  from holding Eagle Point Credit or generate 6.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Diamond Hill Investment  vs.  Eagle Point Credit

Diamond Hill Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

Eagle Point Credit

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Point Credit are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal fundamental indicators, Eagle Point may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diamond Hill and Eagle Point

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

The idea behind Diamond Hill Investment and Eagle Point Credit 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.