Correlation Between Diamond Hill and Winmark

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

Diversification Opportunities for Diamond Hill and Winmark

0.84

Correlation Coefficient

Diamond Hill  Winmark

Very poor diversification

The 3 months correlation between Diamond and Winmark is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Winmark in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Winmark 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 Winmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Winmark has no effect on the direction of Diamond Hill i.e., Diamond Hill and Winmark go up and down completely randomly.

Pair Corralation between Diamond Hill and Winmark

Given the investment horizon of 90 days Diamond Hill is expected to generate 2.41 times less return on investment than Winmark. But when comparing it to its historical volatility, Diamond Hill Investment is 1.19 times less risky than Winmark. It trades about 0.07 of its potential returns per unit of risk. Winmark is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  35,097  in Winmark on September 2, 2024 and sell it today you would earn a total of  6,096  from holding Winmark or generate 17.37% return on investment over 90 days.

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

Diamond Hill Investment  vs.  Winmark

Diamond Hill Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating forward indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Winmark

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Winmark are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Winmark sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Hill and Winmark

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

The idea behind Diamond Hill Investment and Winmark 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.