Correlation Between First Industrial and Diamond Hill

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

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

Diversification Opportunities for First Industrial and Diamond Hill

-0.42

Correlation Coefficient

First Industrial  Diamond Hill

Very good diversification

The 3 months correlation between First and Diamond is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding First Industrial Realty and Diamond Hill Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Investment and First Industrial 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 First Industrial Realty 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 Investment has no effect on the direction of First Industrial i.e., First Industrial and Diamond Hill go up and down completely randomly.

Pair Corralation between First Industrial and Diamond Hill

Allowing for the 90-day total investment horizon First Industrial Realty is expected to under-perform the Diamond Hill. But the stock apears to be less risky and, when comparing its historical volatility, First Industrial Realty is 1.59 times less risky than Diamond Hill. The stock trades about -0.08 of its potential returns per unit of risk. The Diamond Hill Investment is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  15,522  in Diamond Hill Investment on September 2, 2024 and sell it today you would earn a total of  1,013  from holding Diamond Hill Investment or generate 6.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

First Industrial Realty  vs.  Diamond Hill Investment

First Industrial Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Industrial Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Industrial is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Diamond Hill Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating forward indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Industrial and Diamond Hill

The main advantage of trading using opposite First Industrial and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Industrial 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 First Industrial Realty and Diamond Hill Investment 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.