Correlation Between Diamond Hill and Edgewood Growth

Can any of the company-specific risk be diversified away by investing in both Diamond Hill and Edgewood Growth 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 Edgewood Growth into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diamond Hill Large and Edgewood Growth Fund, you can compare the effects of market volatilities on Diamond Hill and Edgewood Growth 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 Edgewood Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Edgewood Growth.

Diversification Opportunities for Diamond Hill and Edgewood Growth

0.87

Correlation Coefficient

Diamond Hill  Edgewood Growth

Very poor diversification

The 3 months correlation between Diamond and Edgewood is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Large and Edgewood Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edgewood Growth 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 Large are associated (or correlated) with Edgewood Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edgewood Growth has no effect on the direction of Diamond Hill i.e., Diamond Hill and Edgewood Growth go up and down completely randomly.

Pair Corralation between Diamond Hill and Edgewood Growth

Assuming the 90 days horizon Diamond Hill Large is expected to generate 0.54 times more return on investment than Edgewood Growth. However, Diamond Hill Large is 1.85 times less risky than Edgewood Growth. It trades about -0.11 of its potential returns per unit of risk. Edgewood Growth Fund is currently generating about -0.13 per unit of risk. If you would invest  3,718  in Diamond Hill Large on December 1, 2024 and sell it today you would lose (332.00) from holding Diamond Hill Large or give up 8.93% of portfolio value over 90 days.

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

Diamond Hill Large  vs.  Edgewood Growth Fund

Diamond Hill Large

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill Large has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Edgewood Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Edgewood Growth Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's forward indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Diamond Hill and Edgewood Growth

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

The idea behind Diamond Hill Large and Edgewood Growth Fund 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.