Correlation Between Diamond Hill and Income Opportunity

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

Diversification Opportunities for Diamond Hill and Income Opportunity

-0.69

Correlation Coefficient

Diamond Hill  Income Opportunity

Excellent diversification

The 3 months correlation between Diamond and Income is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Income Opportunity Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Income Opportunity Realty 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 Income Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Income Opportunity Realty has no effect on the direction of Diamond Hill i.e., Diamond Hill and Income Opportunity go up and down completely randomly.

Pair Corralation between Diamond Hill and Income Opportunity

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Income Opportunity. In addition to that, Diamond Hill is 1.34 times more volatile than Income Opportunity Realty. It trades about -0.02 of its total potential returns per unit of risk. Income Opportunity Realty is currently generating about -0.01 per unit of volatility. If you would invest  1,805  in Income Opportunity Realty on October 22, 2024 and sell it today you would lose (5.00) from holding Income Opportunity Realty or give up 0.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Diamond Hill Investment  vs.  Income Opportunity Realty

Diamond Hill Investment

Risk-Adjusted Performance

0 of 100

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.

Income Opportunity Realty

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Income Opportunity Realty are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Income Opportunity may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Diamond Hill and Income Opportunity

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

The idea behind Diamond Hill Investment and Income Opportunity Realty 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.