Correlation Between Gmo Core and Diamond Hill

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

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

Diversification Opportunities for Gmo Core and Diamond Hill

0.71

Correlation Coefficient

Gmo Core  Diamond Hill

Poor diversification

The 3 months correlation between Gmo and Diamond is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Gmo E Plus 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 Gmo Core 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 Gmo E Plus 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 Gmo Core i.e., Gmo Core and Diamond Hill go up and down completely randomly.

Pair Corralation between Gmo Core and Diamond Hill

Assuming the 90 days horizon Gmo Core is expected to generate 2.35 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, Gmo E Plus is 2.91 times less risky than Diamond Hill. It trades about 0.14 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  1,268  in Diamond Hill Large on December 28, 2024 and sell it today you would earn a total of  71.00  from holding Diamond Hill Large or generate 5.6% return on investment over 90 days.

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

Gmo E Plus  vs.  Diamond Hill Large

Gmo E Plus

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo E Plus are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Gmo Core 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

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 forward 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 Gmo Core and Diamond Hill

The main advantage of trading using opposite Gmo Core and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo Core 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 Gmo E Plus 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.