Correlation Between Ares Capital and Diamond Hill
Can any of the company-specific risk be diversified away by investing in both Ares 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 Ares 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 Ares Capital and Diamond Hill Investment, you can compare the effects of market volatilities on Ares 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 Ares Capital with a short position of Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Capital and Diamond Hill.
Diversification Opportunities for Ares Capital and Diamond Hill
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ares and Diamond is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ares 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 Ares 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 Ares 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 Ares Capital i.e., Ares Capital and Diamond Hill go up and down completely randomly.
Pair Corralation between Ares Capital and Diamond Hill
Given the investment horizon of 90 days Ares Capital is expected to generate 6.23 times less return on investment than Diamond Hill. But when comparing it to its historical volatility, Ares Capital is 2.87 times less risky than Diamond Hill. It trades about 0.1 of its potential returns per unit of risk. Diamond Hill Investment is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 15,541 in Diamond Hill Investment on August 27, 2024 and sell it today you would earn a total of 1,515 from holding Diamond Hill Investment or generate 9.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ares Capital vs. Diamond Hill Investment
Performance |
| Timeline |
| Ares Capital |
| Diamond Hill Investment |
Ares Capital and Diamond Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ares Capital and Diamond Hill
The main advantage of trading using opposite Ares Capital and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares 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.| Ares Capital vs. Triplepoint Venture Growth | Ares Capital vs. Sixth Street Specialty | Ares Capital vs. Main Street Capital | Ares Capital vs. Capital Southwest |
| Diamond Hill vs. Federated Premier Municipal | Diamond Hill vs. Blackrock Muniyield | Diamond Hill vs. NXG NextGen Infrastructure | Diamond Hill vs. Federated Investors B |
Check out your portfolio center.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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