Correlation Between Balanced Fund and Diamond Hill

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

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

Diversification Opportunities for Balanced Fund and Diamond Hill

0.78

Correlation Coefficient

Balanced Fund  Diamond Hill

Poor diversification

The 3 months correlation between Balanced and Diamond is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Balanced Fund Retail and Diamond Hill Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Short and Balanced Fund 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 Balanced Fund Retail 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 Short has no effect on the direction of Balanced Fund i.e., Balanced Fund and Diamond Hill go up and down completely randomly.

Pair Corralation between Balanced Fund and Diamond Hill

Assuming the 90 days horizon Balanced Fund Retail is expected to generate 5.73 times more return on investment than Diamond Hill. However, Balanced Fund is 5.73 times more volatile than Diamond Hill Short. It trades about 0.15 of its potential returns per unit of risk. Diamond Hill Short is currently generating about 0.26 per unit of risk. If you would invest  1,400  in Balanced Fund Retail on September 12, 2024 and sell it today you would earn a total of  64.00  from holding Balanced Fund Retail or generate 4.57% return on investment over 90 days.

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

Balanced Fund Retail  vs.  Diamond Hill Short

Balanced Fund Retail

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Balanced Fund Retail are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Balanced Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diamond Hill Short

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Short are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. 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 Balanced Fund and Diamond Hill

The main advantage of trading using opposite Balanced Fund and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balanced Fund 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 Balanced Fund Retail and Diamond Hill Short 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.