Correlation Between Western Asset and Diamond Hill

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

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

Diversification Opportunities for Western Asset and Diamond Hill

-0.5

Correlation Coefficient

Western Asset  Diamond Hill

Very good diversification

The 3 months correlation between Western and Diamond is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Global 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 Western Asset 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 Western Asset Global 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 Western Asset i.e., Western Asset and Diamond Hill go up and down completely randomly.

Pair Corralation between Western Asset and Diamond Hill

Considering the 90-day investment horizon Western Asset Global is expected to under-perform the Diamond Hill. But the etf apears to be less risky and, when comparing its historical volatility, Western Asset Global is 3.82 times less risky than Diamond Hill. The etf trades about 0.0 of its potential returns per unit of risk. The Diamond Hill Investment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  14,866  in Diamond Hill Investment on September 3, 2024 and sell it today you would earn a total of  1,669  from holding Diamond Hill Investment or generate 11.23% return on investment over 90 days.

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

Western Asset Global  vs.  Diamond Hill Investment

Western Asset Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Western Asset is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the 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 Western Asset and Diamond Hill

The main advantage of trading using opposite Western Asset and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Global 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.