Correlation Between DIA and CVP

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

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

Diversification Opportunities for DIA and CVP

0.74

Correlation Coefficient

DIA  CVP

Poor diversification

The 3 months correlation between DIA and CVP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DIA and CVP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVP 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 CVP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVP has no effect on the direction of DIA i.e., DIA and CVP go up and down completely randomly.

Pair Corralation between DIA and CVP

Assuming the 90 days trading horizon DIA is expected to generate 0.21 times more return on investment than CVP. However, DIA is 4.8 times less risky than CVP. It trades about -0.13 of its potential returns per unit of risk. CVP is currently generating about -0.03 per unit of risk. If you would invest  70.00  in DIA on December 28, 2024 and sell it today you would lose (29.00) from holding DIA or give up 41.43% of portfolio value over 90 days.

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

DIA  vs.  CVP

DIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for DIA shareholders.

CVP

Risk-Adjusted Performance

Very Weak

Over the last 90 days CVP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for CVP shareholders.

Pair Trading with DIA and CVP

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

The idea behind DIA and CVP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.