Correlation Between Diamond Hill and Fidelity Mid

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

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

Diversification Opportunities for Diamond Hill and Fidelity Mid

0.97

Correlation Coefficient

Diamond Hill  Fidelity Mid

Almost no diversification

The 3 months correlation between Diamond and Fidelity is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Small Mid and Fidelity Mid Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Mid Cap and Diamond Hill 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 Diamond Hill Small Mid are associated (or correlated) with Fidelity Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Mid Cap has no effect on the direction of Diamond Hill i.e., Diamond Hill and Fidelity Mid go up and down completely randomly.

Pair Corralation between Diamond Hill and Fidelity Mid

Assuming the 90 days horizon Diamond Hill Small Mid is expected to under-perform the Fidelity Mid. In addition to that, Diamond Hill is 1.16 times more volatile than Fidelity Mid Cap Stock. It trades about -0.27 of its total potential returns per unit of risk. Fidelity Mid Cap Stock is currently generating about -0.27 per unit of volatility. If you would invest  4,377  in Fidelity Mid Cap Stock on February 1, 2024 and sell it today you would lose (211.00) from holding Fidelity Mid Cap Stock or give up 4.82% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Diamond Hill Small Mid  vs.  Fidelity Mid Cap Stock

Diamond Hill Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Small Mid has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Diamond Hill is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fidelity Mid Cap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidelity Mid Cap Stock are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Fidelity Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diamond Hill and Fidelity Mid

The main advantage of trading using opposite Diamond Hill and Fidelity Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Hill position performs unexpectedly, Fidelity Mid 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 Fidelity Mid will offset losses from the drop in Fidelity Mid's long position.

The idea behind Diamond Hill Small Mid and Fidelity Mid Cap Stock 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.