Correlation Between Diamond Hill and Old Market

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

Diversification Opportunities for Diamond Hill and Old Market

-0.08

Correlation Coefficient

Diamond Hill  Old Market

Good diversification

The 3 months correlation between Diamond and Old is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Old Market Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Market Capital 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 Old Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Market Capital has no effect on the direction of Diamond Hill i.e., Diamond Hill and Old Market go up and down completely randomly.

Pair Corralation between Diamond Hill and Old Market

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Old Market. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Hill Investment is 1.97 times less risky than Old Market. The stock trades about -0.08 of its potential returns per unit of risk. The Old Market Capital is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  593.00  in Old Market Capital on December 27, 2024 and sell it today you would earn a total of  27.00  from holding Old Market Capital or generate 4.55% return on investment over 90 days.

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

Diamond Hill Investment  vs.  Old Market Capital

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.

Old Market Capital

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Old Market Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Old Market is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Diamond Hill and Old Market

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

The idea behind Diamond Hill Investment and Old Market Capital 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.