Correlation Between HC and DIA

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

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

Diversification Opportunities for HC and DIA

0.86

Correlation Coefficient

HC  DIA

Very poor diversification

The 3 months correlation between HC and DIA is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding HC and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and HC 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 HC are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of HC i.e., HC and DIA go up and down completely randomly.

Pair Corralation between HC and DIA

Assuming the 90 days horizon HC is expected to generate 7.01 times more return on investment than DIA. However, HC is 7.01 times more volatile than DIA. It trades about 0.09 of its potential returns per unit of risk. DIA is currently generating about -0.13 per unit of risk. If you would invest  2.35  in HC on December 26, 2024 and sell it today you would lose (0.15) from holding HC or give up 6.38% of portfolio value over 90 days.

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

HC  vs.  DIA

HC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, HC exhibited solid returns over the last few months and may actually be approaching a breakup point.

DIA

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for DIA shareholders.

Pair Trading with HC and DIA

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

The idea behind HC and DIA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.