Correlation Between Diamond Hill and Prudential Qma

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

By analyzing existing cross correlation between Diamond Hill All and Prudential Qma Mid Cap, you can compare the effects of market volatilities on Diamond Hill and Prudential Qma 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 Prudential Qma. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Prudential Qma.

Diversification Opportunities for Diamond Hill and Prudential Qma

0.92

Correlation Coefficient

Diamond Hill  Prudential Qma

Almost no diversification

The 3 months correlation between Diamond and Prudential is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill All and Prudential Qma Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Qma Mid 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 All are associated (or correlated) with Prudential Qma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Qma Mid has no effect on the direction of Diamond Hill i.e., Diamond Hill and Prudential Qma go up and down completely randomly.

Pair Corralation between Diamond Hill and Prudential Qma

Assuming the 90 days horizon Diamond Hill is expected to generate 1.18 times less return on investment than Prudential Qma. In addition to that, Diamond Hill is 1.24 times more volatile than Prudential Qma Mid Cap. It trades about 0.11 of its total potential returns per unit of risk. Prudential Qma Mid Cap is currently generating about 0.16 per unit of volatility. If you would invest  2,438  in Prudential Qma Mid Cap on September 12, 2024 and sell it today you would earn a total of  187.00  from holding Prudential Qma Mid Cap or generate 7.67% return on investment over 90 days.

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

Diamond Hill All  vs.  Prudential Qma Mid Cap

Diamond Hill All

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill All are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Prudential Qma Mid

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Qma Mid Cap are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Prudential Qma may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diamond Hill and Prudential Qma

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

The idea behind Diamond Hill All and Prudential Qma Mid Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.