Correlation Between Diamond Hill and Nuveen Equity

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

By analyzing existing cross correlation between Diamond Hill Long Short and Nuveen Equity Longshort, you can compare the effects of market volatilities on Diamond Hill and Nuveen Equity 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 Nuveen Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Nuveen Equity.

Diversification Opportunities for Diamond Hill and Nuveen Equity

0.75

Correlation Coefficient

Diamond Hill  Nuveen Equity

Poor diversification

The 3 months correlation between Diamond and Nuveen is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Long Short and Nuveen Equity Longshort in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Equity Longshort 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 Long Short are associated (or correlated) with Nuveen Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Equity Longshort has no effect on the direction of Diamond Hill i.e., Diamond Hill and Nuveen Equity go up and down completely randomly.

Pair Corralation between Diamond Hill and Nuveen Equity

Assuming the 90 days horizon Diamond Hill Long Short is expected to generate 1.1 times more return on investment than Nuveen Equity. However, Diamond Hill is 1.1 times more volatile than Nuveen Equity Longshort. It trades about -0.06 of its potential returns per unit of risk. Nuveen Equity Longshort is currently generating about -0.09 per unit of risk. If you would invest  2,910  in Diamond Hill Long Short on December 3, 2024 and sell it today you would lose (112.00) from holding Diamond Hill Long Short or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Diamond Hill Long Short  vs.  Nuveen Equity Longshort

Diamond Hill Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill Long Short has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Diamond Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Nuveen Equity Longshort

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nuveen Equity Longshort has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Nuveen Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and Nuveen Equity

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

The idea behind Diamond Hill Long Short and Nuveen Equity Longshort 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.