Correlation Between Spring Valley and Diamond Hill

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

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

Diversification Opportunities for Spring Valley and Diamond Hill

0.16

Correlation Coefficient

Spring Valley  Diamond Hill

Average diversification

The 3 months correlation between Spring and Diamond is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Spring Valley Acquisition and Diamond Hill Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Long and Spring Valley 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 Spring Valley Acquisition 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 Long has no effect on the direction of Spring Valley i.e., Spring Valley and Diamond Hill go up and down completely randomly.

Pair Corralation between Spring Valley and Diamond Hill

Given the investment horizon of 90 days Spring Valley is expected to generate 3.9 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, Spring Valley Acquisition is 3.89 times less risky than Diamond Hill. It trades about 0.21 of its potential returns per unit of risk. Diamond Hill Long Short is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,713  in Diamond Hill Long Short on December 3, 2024 and sell it today you would earn a total of  104.00  from holding Diamond Hill Long Short or generate 3.83% return on investment over 90 days.

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

Spring Valley Acquisition  vs.  Diamond Hill Long Short

Spring Valley Acquisition

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Spring Valley Acquisition are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Spring Valley is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Diamond Hill Long

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Hill Long Short has generated negative risk-adjusted returns adding no value to fund investors. 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 Spring Valley and Diamond Hill

The main advantage of trading using opposite Spring Valley and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spring Valley 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 Spring Valley Acquisition and Diamond Hill Long 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..