Correlation Between Diamond Hill and Baldwin Insurance

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

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

Diversification Opportunities for Diamond Hill and Baldwin Insurance

-0.28

Correlation Coefficient

Diamond Hill  Baldwin Insurance

Very good diversification

The 3 months correlation between Diamond and Baldwin is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and The Baldwin Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baldwin Insurance and Diamond Hill 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 Diamond Hill Investment are associated (or correlated) with Baldwin Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baldwin Insurance has no effect on the direction of Diamond Hill i.e., Diamond Hill and Baldwin Insurance go up and down completely randomly.

Pair Corralation between Diamond Hill and Baldwin Insurance

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 0.53 times more return on investment than Baldwin Insurance. However, Diamond Hill Investment is 1.89 times less risky than Baldwin Insurance. It trades about -0.05 of its potential returns per unit of risk. The Baldwin Insurance is currently generating about -0.1 per unit of risk. If you would invest  15,956  in Diamond Hill Investment on September 20, 2024 and sell it today you would lose (930.00) from holding Diamond Hill Investment or give up 5.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Diamond Hill Investment  vs.  The Baldwin Insurance

Diamond Hill Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Baldwin Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Baldwin Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Diamond Hill and Baldwin Insurance

The main advantage of trading using opposite Diamond Hill and Baldwin Insurance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Hill position performs unexpectedly, Baldwin Insurance 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 Baldwin Insurance will offset losses from the drop in Baldwin Insurance's long position.

The idea behind Diamond Hill Investment and The Baldwin Insurance 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.