Correlation Between Diamond Hill and Affiliated Managers

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

Diversification Opportunities for Diamond Hill and Affiliated Managers

0.07

Correlation Coefficient

Diamond Hill  Affiliated Managers

Significant diversification

The 3 months correlation between Diamond and Affiliated is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Affiliated Managers Group, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affiliated Managers 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 Affiliated Managers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affiliated Managers has no effect on the direction of Diamond Hill i.e., Diamond Hill and Affiliated Managers go up and down completely randomly.

Pair Corralation between Diamond Hill and Affiliated Managers

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Affiliated Managers. In addition to that, Diamond Hill is 1.06 times more volatile than Affiliated Managers Group,. It trades about -0.08 of its total potential returns per unit of risk. Affiliated Managers Group, is currently generating about -0.01 per unit of volatility. If you would invest  1,774  in Affiliated Managers Group, on December 30, 2024 and sell it today you would lose (15.00) from holding Affiliated Managers Group, or give up 0.85% of portfolio value over 90 days.

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

Diamond Hill Investment  vs.  Affiliated Managers Group,

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.

Affiliated Managers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affiliated Managers Group, has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Affiliated Managers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and Affiliated Managers

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

The idea behind Diamond Hill Investment and Affiliated Managers Group, 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.