Correlation Between DIA and GMX

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

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

Diversification Opportunities for DIA and GMX

-0.09

Correlation Coefficient

DIA  GMX

Good diversification

The 3 months correlation between DIA and GMX is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding DIA and GMX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMX and DIA 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 DIA are associated (or correlated) with GMX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMX has no effect on the direction of DIA i.e., DIA and GMX go up and down completely randomly.

Pair Corralation between DIA and GMX

Assuming the 90 days trading horizon DIA is expected to generate 2.84 times more return on investment than GMX. However, DIA is 2.84 times more volatile than GMX. It trades about 0.16 of its potential returns per unit of risk. GMX is currently generating about 0.1 per unit of risk. If you would invest  34.00  in DIA on September 1, 2024 and sell it today you would earn a total of  55.00  from holding DIA or generate 161.76% return on investment over 90 days.

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

DIA  vs.  GMX

DIA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

GMX

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMX are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, GMX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIA and GMX

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

The idea behind DIA and GMX 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 Stocks Directory module to find actively traded stocks across global markets.