Correlation Between DIA and BTT

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

By analyzing existing cross correlation between DIA and BTT, you can compare the effects of market volatilities on DIA and BTT 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 DIA with a short position of BTT. Check out your portfolio center. Please also check ongoing floating volatility patterns of DIA and BTT.

Diversification Opportunities for DIA and BTT

0.0

Correlation Coefficient

DIA  BTT

Pay attention - limited upside

The 3 months correlation between DIA and BTT is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DIA and BTT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTT and DIA 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 DIA are associated (or correlated) with BTT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTT has no effect on the direction of DIA i.e., DIA and BTT go up and down completely randomly.

Pair Corralation between DIA and BTT

If you would invest  35.00  in DIA on September 3, 2024 and sell it today you would earn a total of  59.00  from holding DIA or generate 168.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

DIA  vs.  BTT

DIA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BTT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BTT is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with DIA and BTT

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

The idea behind DIA and BTT 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.