Correlation Between Ford and Diamond Hill
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Diamond Hill into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Diamond Hill Large, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Diamond Hill.
Diversification Opportunities for Ford and Diamond Hill
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Diamond is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Diamond Hill Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Large and Ford 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 Ford Motor 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 Large has no effect on the direction of Ford i.e., Ford and Diamond Hill go up and down completely randomly.
Pair Corralation between Ford and Diamond Hill
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.6 times more return on investment than Diamond Hill. However, Ford is 2.6 times more volatile than Diamond Hill Large. It trades about 0.23 of its potential returns per unit of risk. Diamond Hill Large is currently generating about 0.28 per unit of risk. If you would invest 1,015 in Ford Motor on September 1, 2024 and sell it today you would earn a total of 98.00 from holding Ford Motor or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Diamond Hill Large
Performance |
| Timeline |
| Ford Motor |
| Diamond Hill Large |
Ford and Diamond Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Diamond Hill
The main advantage of trading using opposite Ford and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor and Diamond Hill Large 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.| Diamond Hill vs. Diamond Hill Large | Diamond Hill vs. Diamond Hill Large | Diamond Hill vs. Loomis Sayles Growth | Diamond Hill vs. Loomis Sayles Growth |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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