Correlation Between Vanguard Total and Diamond Hill

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

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

Diversification Opportunities for Vanguard Total and Diamond Hill

0.99

Correlation Coefficient

Vanguard Total  Diamond Hill

No risk reduction

The 3 months correlation between Vanguard and Diamond is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Total Bond and Diamond Hill E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill E and Vanguard Total 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 Vanguard Total Bond 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 E has no effect on the direction of Vanguard Total i.e., Vanguard Total and Diamond Hill go up and down completely randomly.

Pair Corralation between Vanguard Total and Diamond Hill

Assuming the 90 days horizon Vanguard Total Bond is expected to under-perform the Diamond Hill. In addition to that, Vanguard Total is 1.06 times more volatile than Diamond Hill E. It trades about -0.04 of its total potential returns per unit of risk. Diamond Hill E is currently generating about -0.03 per unit of volatility. If you would invest  917.00  in Diamond Hill E on September 3, 2024 and sell it today you would lose (5.00) from holding Diamond Hill E or give up 0.55% of portfolio value over 90 days.

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

Vanguard Total Bond  vs.  Diamond Hill E

Vanguard Total Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Diamond Hill E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill E 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 Vanguard Total and Diamond Hill

The main advantage of trading using opposite Vanguard Total and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Total 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 Vanguard Total Bond and Diamond Hill E 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.