Correlation Between Global Real and Diamond Hill

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

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

Diversification Opportunities for Global Real and Diamond Hill

0.36

Correlation Coefficient

Global Real  Diamond Hill

Weak diversification

The 3 months correlation between Global and Diamond is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Global Real Estate and Diamond Hill Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Small and Global Real 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 Global Real Estate 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 Small has no effect on the direction of Global Real i.e., Global Real and Diamond Hill go up and down completely randomly.

Pair Corralation between Global Real and Diamond Hill

Assuming the 90 days horizon Global Real is expected to generate 1.69 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, Global Real Estate is 1.96 times less risky than Diamond Hill. It trades about 0.02 of its potential returns per unit of risk. Diamond Hill Small is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,405  in Diamond Hill Small on September 29, 2024 and sell it today you would earn a total of  33.00  from holding Diamond Hill Small or generate 1.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Global Real Estate  vs.  Diamond Hill Small

Global Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Global Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Diamond Hill Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Global Real and Diamond Hill

The main advantage of trading using opposite Global Real and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Real 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 Global Real Estate and Diamond Hill Small 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.