Correlation Between MLN and DIA

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

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

Diversification Opportunities for MLN and DIA

0.87

Correlation Coefficient

MLN  DIA

Very poor diversification

The 3 months correlation between MLN and DIA is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MLN and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and MLN 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 MLN 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 MLN i.e., MLN and DIA go up and down completely randomly.

Pair Corralation between MLN and DIA

Assuming the 90 days trading horizon MLN is expected to under-perform the DIA. But the crypto coin apears to be less risky and, when comparing its historical volatility, MLN is 1.24 times less risky than DIA. The crypto coin trades about -0.24 of its potential returns per unit of risk. The DIA is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  70.00  in DIA on December 28, 2024 and sell it today you would lose (29.00) from holding DIA or give up 41.43% of portfolio value over 90 days.

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

MLN  vs.  DIA

MLN

Risk-Adjusted Performance

Very Weak

Over the last 90 days MLN 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 MLN shareholders.

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 MLN and DIA

The main advantage of trading using opposite MLN and DIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MLN 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 MLN 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.