Correlation Between Diamond Hill and PGIM Short

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

Diversification Opportunities for Diamond Hill and PGIM Short

0.61

Correlation Coefficient

Diamond Hill  PGIM Short

Poor diversification

The 3 months correlation between Diamond and PGIM is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and PGIM Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGIM Short Duration 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 PGIM Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGIM Short Duration has no effect on the direction of Diamond Hill i.e., Diamond Hill and PGIM Short go up and down completely randomly.

Pair Corralation between Diamond Hill and PGIM Short

Given the investment horizon of 90 days Diamond Hill is expected to generate 1.97 times less return on investment than PGIM Short. In addition to that, Diamond Hill is 3.52 times more volatile than PGIM Short Duration. It trades about 0.02 of its total potential returns per unit of risk. PGIM Short Duration is currently generating about 0.14 per unit of volatility. If you would invest  1,405  in PGIM Short Duration on October 2, 2024 and sell it today you would earn a total of  207.00  from holding PGIM Short Duration or generate 14.73% return on investment over 90 days.

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

Diamond Hill Investment  vs.  PGIM Short Duration

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.

PGIM Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PGIM Short Duration has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, PGIM Short is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and PGIM Short

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

The idea behind Diamond Hill Investment and PGIM Short Duration 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.