Correlation Between NAV and DIA
Can any of the company-specific risk be diversified away by investing in both NAV and DIA 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 NAV and DIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NAV and DIA, you can compare the effects of market volatilities on NAV and DIA 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 NAV with a short position of DIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of NAV and DIA.
Diversification Opportunities for NAV and DIA
Pay attention - limited upside
The 3 months correlation between NAV and DIA is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding NAV and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and NAV 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 NAV are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of NAV i.e., NAV and DIA go up and down completely randomly.
Pair Corralation between NAV and DIA
Assuming the 90 days trading horizon NAV is expected to under-perform the DIA. But the crypto coin apears to be less risky and, when comparing its historical volatility, NAV is 3.61 times less risky than DIA. The crypto coin trades about -0.12 of its potential returns per unit of risk. The DIA is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 34.00 in DIA on August 31, 2024 and sell it today you would earn a total of 48.00 from holding DIA or generate 141.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
NAV vs. DIA
Performance |
| Timeline |
| NAV |
| DIA |
NAV and DIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NAV and DIA
The main advantage of trading using opposite NAV and DIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAV position performs unexpectedly, DIA 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 DIA will offset losses from the drop in DIA's long position.The idea behind NAV and DIA 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.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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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