Correlation Between Diamond Hill and Old Republic

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

Diversification Opportunities for Diamond Hill and Old Republic

-0.59

Correlation Coefficient

Diamond Hill  Old Republic

Excellent diversification

The 3 months correlation between Diamond and Old is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Diamond Hill i.e., Diamond Hill and Old Republic go up and down completely randomly.

Pair Corralation between Diamond Hill and Old Republic

Given the investment horizon of 90 days Diamond Hill Investment is expected to under-perform the Old Republic. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Hill Investment is 1.07 times less risky than Old Republic. The stock trades about -0.07 of its potential returns per unit of risk. The Old Republic International is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,384  in Old Republic International on December 28, 2024 and sell it today you would earn a total of  521.00  from holding Old Republic International or generate 15.4% return on investment over 90 days.

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

Diamond Hill Investment  vs.  Old Republic International

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 Republic Interna

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Old Republic demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Hill and Old Republic

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

The idea behind Diamond Hill Investment and Old Republic International 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.