Correlation Between Diamond Hill and DWS Municipal

Can any of the company-specific risk be diversified away by investing in both Diamond Hill and DWS Municipal 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 DWS Municipal 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 DWS Municipal Income, you can compare the effects of market volatilities on Diamond Hill and DWS Municipal 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 DWS Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and DWS Municipal.

Diversification Opportunities for Diamond Hill and DWS Municipal

0.42

Correlation Coefficient

Diamond Hill  DWS Municipal

Very weak diversification

The 3 months correlation between Diamond and DWS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and DWS Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DWS Municipal Income 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 DWS Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DWS Municipal Income has no effect on the direction of Diamond Hill i.e., Diamond Hill and DWS Municipal go up and down completely randomly.

Pair Corralation between Diamond Hill and DWS Municipal

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 3.22 times more return on investment than DWS Municipal. However, Diamond Hill is 3.22 times more volatile than DWS Municipal Income. It trades about 0.06 of its potential returns per unit of risk. DWS Municipal Income is currently generating about 0.1 per unit of risk. If you would invest  14,332  in Diamond Hill Investment on September 15, 2024 and sell it today you would earn a total of  1,614  from holding Diamond Hill Investment or generate 11.26% return on investment over 90 days.

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

Diamond Hill Investment  vs.  DWS Municipal Income

Diamond Hill Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

DWS Municipal Income

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DWS Municipal Income are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DWS Municipal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Diamond Hill and DWS Municipal

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

The idea behind Diamond Hill Investment and DWS Municipal Income 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.