Correlation Between Pace Large and Diamond Hill

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

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

Diversification Opportunities for Pace Large and Diamond Hill

-0.54

Correlation Coefficient

Pace Large  Diamond Hill

Excellent diversification

The 3 months correlation between Pace and Diamond is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Pace Large Growth 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 Pace Large 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 Pace Large Growth 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 Pace Large i.e., Pace Large and Diamond Hill go up and down completely randomly.

Pair Corralation between Pace Large and Diamond Hill

Assuming the 90 days horizon Pace Large Growth is expected to generate 15.78 times more return on investment than Diamond Hill. However, Pace Large is 15.78 times more volatile than Diamond Hill Short. It trades about 0.03 of its potential returns per unit of risk. Diamond Hill Short is currently generating about 0.42 per unit of risk. If you would invest  1,460  in Pace Large Growth on October 24, 2024 and sell it today you would earn a total of  118.00  from holding Pace Large Growth or generate 8.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Pace Large Growth  vs.  Diamond Hill Short

Pace Large Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pace Large Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Pace Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diamond Hill Short

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Short are ranked lower than 34 (%) 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 Pace Large and Diamond Hill

The main advantage of trading using opposite Pace Large and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pace Large 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 Pace Large Growth 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.