Correlation Between Microsoft and Diamond Hill

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

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

Diversification Opportunities for Microsoft and Diamond Hill

-0.87

Correlation Coefficient

Microsoft  Diamond Hill

Pay attention - limited upside

The 3 months correlation between Microsoft and Diamond is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Diamond Hill Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Short and Microsoft 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 Microsoft 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 Short has no effect on the direction of Microsoft i.e., Microsoft and Diamond Hill go up and down completely randomly.

Pair Corralation between Microsoft and Diamond Hill

Given the investment horizon of 90 days Microsoft is expected to under-perform the Diamond Hill. In addition to that, Microsoft is 21.51 times more volatile than Diamond Hill Short. It trades about -0.1 of its total potential returns per unit of risk. Diamond Hill Short is currently generating about 0.5 per unit of volatility. If you would invest  985.00  in Diamond Hill Short on December 22, 2024 and sell it today you would earn a total of  22.00  from holding Diamond Hill Short or generate 2.23% return on investment over 90 days.

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

Microsoft  vs.  Diamond Hill Short

Microsoft

Risk-Adjusted Performance

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Diamond Hill Short

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Short are ranked lower than 39 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic 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 Microsoft and Diamond Hill

The main advantage of trading using opposite Microsoft and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft and Diamond Hill Short 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.