Correlation Between Diamond Hill and Seven Hills

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

Diversification Opportunities for Diamond Hill and Seven Hills

0.03

Correlation Coefficient

Diamond Hill  Seven Hills

Significant diversification

The 3 months correlation between Diamond and Seven is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Seven Hills Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seven Hills Realty 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 Seven Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seven Hills Realty has no effect on the direction of Diamond Hill i.e., Diamond Hill and Seven Hills go up and down completely randomly.

Pair Corralation between Diamond Hill and Seven Hills

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 0.6 times more return on investment than Seven Hills. However, Diamond Hill Investment is 1.66 times less risky than Seven Hills. It trades about -0.11 of its potential returns per unit of risk. Seven Hills Realty is currently generating about -0.16 per unit of risk. If you would invest  14,853  in Diamond Hill Investment on December 4, 2024 and sell it today you would lose (290.00) from holding Diamond Hill Investment or give up 1.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Diamond Hill Investment  vs.  Seven Hills Realty

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 latest unfluctuating performance, the Stock's forward indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Seven Hills Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days Seven Hills Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Seven Hills is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and Seven Hills

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

The idea behind Diamond Hill Investment and Seven Hills Realty 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.