Correlation Between American Funds and Diamond Hill

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

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

Diversification Opportunities for American Funds and Diamond Hill

0.85

Correlation Coefficient

American Funds  Diamond Hill

Very poor diversification

The 3 months correlation between American and Diamond is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Diamond Hill Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Large and American Funds 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 American Funds American are associated (or correlated) with Diamond Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Hill Large has no effect on the direction of American Funds i.e., American Funds and Diamond Hill go up and down completely randomly.

Pair Corralation between American Funds and Diamond Hill

Assuming the 90 days horizon American Funds is expected to generate 1.01 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, American Funds American is 1.21 times less risky than Diamond Hill. It trades about 0.15 of its potential returns per unit of risk. Diamond Hill Large is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,620  in Diamond Hill Large on September 3, 2024 and sell it today you would earn a total of  190.00  from holding Diamond Hill Large or generate 5.25% return on investment over 90 days.

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

American Funds American  vs.  Diamond Hill Large

American Funds American

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds American are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diamond Hill Large

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Large are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. 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.

Pair Trading with American Funds and Diamond Hill

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

The idea behind American Funds American and Diamond Hill Large 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.