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 Investment, 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

-0.14

Correlation Coefficient

Ford  Diamond Hill

Good diversification

The 3 months correlation between Ford and Diamond is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 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 Investment 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 under-perform the Diamond Hill. In addition to that, Ford is 3.01 times more volatile than Diamond Hill Investment. It trades about -0.1 of its total potential returns per unit of risk. Diamond Hill Investment is currently generating about 0.11 per unit of volatility. If you would invest  14,909  in Diamond Hill Investment on February 2, 2024 and sell it today you would earn a total of  283.00  from holding Diamond Hill Investment or generate 1.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Diamond Hill Investment

Ford Motor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ford Motor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Ford may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Diamond Hill Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Hill Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, Diamond Hill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

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 Investment 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 Transaction History module to view history of all your transactions and understand their impact on performance.