Correlation Between Diamond Hill and MidCap Financial

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

Diversification Opportunities for Diamond Hill and MidCap Financial

-0.19

Correlation Coefficient

Diamond Hill  MidCap Financial

Good diversification

The 3 months correlation between Diamond and MidCap is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv 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 MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Diamond Hill i.e., Diamond Hill and MidCap Financial go up and down completely randomly.

Pair Corralation between Diamond Hill and MidCap Financial

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the MidCap Financial. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Hill Investment is 1.0 times less risky than MidCap Financial. The stock trades about -0.07 of its potential returns per unit of risk. The MidCap Financial Investment is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,317  in MidCap Financial Investment on December 29, 2024 and sell it today you would lose (13.00) from holding MidCap Financial Investment or give up 0.99% of portfolio value over 90 days.

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

Diamond Hill Investment  vs.  MidCap Financial Investment

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.

MidCap Financial Inv

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Diamond Hill and MidCap Financial

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

The idea behind Diamond Hill Investment and MidCap Financial Investment 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.