Correlation Between DIA and DNT

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

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

Diversification Opportunities for DIA and DNT

0.84

Correlation Coefficient

DIA  DNT

Very poor diversification

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

Pair Corralation between DIA and DNT

Assuming the 90 days trading horizon DIA is expected to under-perform the DNT. But the crypto coin apears to be less risky and, when comparing its historical volatility, DIA is 1.56 times less risky than DNT. The crypto coin trades about -0.13 of its potential returns per unit of risk. The DNT is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4.46  in DNT on December 28, 2024 and sell it today you would lose (1.78) from holding DNT or give up 39.91% of portfolio value over 90 days.

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

DIA  vs.  DNT

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.

DNT

Risk-Adjusted Performance

Very Weak

Over the last 90 days DNT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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 DNT shareholders.

Pair Trading with DIA and DNT

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

The idea behind DIA and DNT 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.