Correlation Between Monroe Capital and Diamond Hill

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

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

Diversification Opportunities for Monroe Capital and Diamond Hill

0.04

Correlation Coefficient

Monroe Capital  Diamond Hill

Significant diversification

The 3 months correlation between Monroe and Diamond is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Monroe Capital Corp 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 Monroe Capital 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 Monroe Capital Corp 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 Monroe Capital i.e., Monroe Capital and Diamond Hill go up and down completely randomly.

Pair Corralation between Monroe Capital and Diamond Hill

Given the investment horizon of 90 days Monroe Capital Corp is expected to under-perform the Diamond Hill. In addition to that, Monroe Capital is 1.16 times more volatile than Diamond Hill Investment. It trades about -0.06 of its total potential returns per unit of risk. Diamond Hill Investment is currently generating about -0.07 per unit of volatility. If you would invest  15,280  in Diamond Hill Investment on December 29, 2024 and sell it today you would lose (710.00) from holding Diamond Hill Investment or give up 4.65% of portfolio value over 90 days.

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

Monroe Capital Corp  vs.  Diamond Hill Investment

Monroe Capital Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Monroe Capital Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Monroe Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Diamond Hill Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Monroe Capital and Diamond Hill

The main advantage of trading using opposite Monroe Capital and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monroe Capital 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 Monroe Capital Corp 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.