Correlation Between Materials Portfolio and Diamond Hill

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

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

Diversification Opportunities for Materials Portfolio and Diamond Hill

0.79

Correlation Coefficient

Materials Portfolio  Diamond Hill

Poor diversification

The 3 months correlation between Materials and Diamond is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Diamond Hill Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Small and Materials Portfolio 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 Materials Portfolio Fidelity 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 Small has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Diamond Hill go up and down completely randomly.

Pair Corralation between Materials Portfolio and Diamond Hill

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 0.72 times more return on investment than Diamond Hill. However, Materials Portfolio Fidelity is 1.39 times less risky than Diamond Hill. It trades about -0.5 of its potential returns per unit of risk. Diamond Hill Small is currently generating about -0.39 per unit of risk. If you would invest  10,201  in Materials Portfolio Fidelity on October 4, 2024 and sell it today you would lose (1,837) from holding Materials Portfolio Fidelity or give up 18.01% of portfolio value over 90 days.

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

Materials Portfolio Fidelity  vs.  Diamond Hill Small

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Diamond Hill Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Materials Portfolio and Diamond Hill

The main advantage of trading using opposite Materials Portfolio and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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 Materials Portfolio Fidelity and Diamond Hill Small 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.