Correlation Between Government Securities and Diamond Hill
Can any of the company-specific risk be diversified away by investing in both Government Securities 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 Government Securities and Diamond Hill into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Diamond Hill Long Short, you can compare the effects of market volatilities on Government Securities 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 Government Securities with a short position of Diamond Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Diamond Hill.
Diversification Opportunities for Government Securities and Diamond Hill
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Government and Diamond is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Diamond Hill Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Hill Long and Government Securities 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 Government Securities Fund 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 Long has no effect on the direction of Government Securities i.e., Government Securities and Diamond Hill go up and down completely randomly.
Pair Corralation between Government Securities and Diamond Hill
Assuming the 90 days horizon Government Securities Fund is expected to generate 0.62 times more return on investment than Diamond Hill. However, Government Securities Fund is 1.62 times less risky than Diamond Hill. It trades about 0.11 of its potential returns per unit of risk. Diamond Hill Long Short is currently generating about 0.06 per unit of risk. If you would invest 880.00 in Government Securities Fund on September 1, 2024 and sell it today you would earn a total of 6.00 from holding Government Securities Fund or generate 0.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Diamond Hill Long Short
Performance |
| Timeline |
| Government Securities |
| Diamond Hill Long |
Government Securities and Diamond Hill Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Diamond Hill
The main advantage of trading using opposite Government Securities and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities 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.| Government Securities vs. Capital Growth Fund | Government Securities vs. High Income Fund | Government Securities vs. International Fund International | Government Securities vs. Growth Income Fund |
| Diamond Hill vs. Franklin Adjustable Government | Diamond Hill vs. Government Securities Fund | Diamond Hill vs. Franklin Government Money | Diamond Hill vs. Dunham Porategovernment Bond |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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