Correlation Between DIA and HC

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

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

Diversification Opportunities for DIA and HC

0.86

Correlation Coefficient

DIA  HC

Very poor diversification

The 3 months correlation between DIA and HC is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding DIA and HC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HC 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 HC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HC has no effect on the direction of DIA i.e., DIA and HC go up and down completely randomly.

Pair Corralation between DIA and HC

Assuming the 90 days trading horizon DIA is expected to under-perform the HC. But the crypto coin apears to be less risky and, when comparing its historical volatility, DIA is 6.81 times less risky than HC. The crypto coin trades about -0.12 of its potential returns per unit of risk. The HC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.35  in HC on December 26, 2024 and sell it today you would lose (0.13) from holding HC or give up 5.53% of portfolio value over 90 days.

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

DIA  vs.  HC

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.

HC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, HC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIA and HC

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

The idea behind DIA and HC 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.