Correlation Between Gladstone Capital and Diamond Hill

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

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

Diversification Opportunities for Gladstone Capital and Diamond Hill

0.73

Correlation Coefficient

Gladstone Capital  Diamond Hill

Poor diversification

The 3 months correlation between Gladstone and Diamond is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Gladstone Capital and Diamond Hill Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Investment and Gladstone Capital 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 Gladstone Capital 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 Investment has no effect on the direction of Gladstone Capital i.e., Gladstone Capital and Diamond Hill go up and down completely randomly.

Pair Corralation between Gladstone Capital and Diamond Hill

Given the investment horizon of 90 days Gladstone Capital is expected to generate 0.59 times more return on investment than Diamond Hill. However, Gladstone Capital is 1.69 times less risky than Diamond Hill. It trades about 0.35 of its potential returns per unit of risk. Diamond Hill Investment is currently generating about 0.06 per unit of risk. If you would invest  2,226  in Gladstone Capital on September 13, 2024 and sell it today you would earn a total of  527.00  from holding Gladstone Capital or generate 23.67% return on investment over 90 days.

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

Gladstone Capital  vs.  Diamond Hill Investment

Gladstone Capital

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Capital are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Gladstone Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Diamond Hill Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 4 (%) 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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Gladstone Capital and Diamond Hill

The main advantage of trading using opposite Gladstone Capital and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gladstone Capital 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 Gladstone Capital and Diamond Hill Investment 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.