Correlation Between Diamond Hill and Logan Ridge

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

By analyzing existing cross correlation between Diamond Hill Investment and Logan Ridge Finance, you can compare the effects of market volatilities on Diamond Hill and Logan Ridge 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 Logan Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Hill and Logan Ridge.

Diversification Opportunities for Diamond Hill and Logan Ridge

0.42

Correlation Coefficient

Diamond Hill  Logan Ridge

Very weak diversification

The 3 months correlation between Diamond and Logan is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Hill Investment and Logan Ridge Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Logan Ridge Finance 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 Investment are associated (or correlated) with Logan Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Logan Ridge Finance has no effect on the direction of Diamond Hill i.e., Diamond Hill and Logan Ridge go up and down completely randomly.

Pair Corralation between Diamond Hill and Logan Ridge

Given the investment horizon of 90 days Diamond Hill Investment is expected to generate 2.0 times more return on investment than Logan Ridge. However, Diamond Hill is 2.0 times more volatile than Logan Ridge Finance. It trades about 0.13 of its potential returns per unit of risk. Logan Ridge Finance is currently generating about 0.16 per unit of risk. If you would invest  16,090  in Diamond Hill Investment on August 19, 2024 and sell it today you would earn a total of  982.00  from holding Diamond Hill Investment or generate 6.1% return on investment over 90 days.

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

Diamond Hill Investment  vs.  Logan Ridge Finance

Diamond Hill Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Hill Investment are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting forward indicators, Diamond Hill may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Logan Ridge Finance

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Logan Ridge Finance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, Logan Ridge exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Hill and Logan Ridge

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

The idea behind Diamond Hill Investment and Logan Ridge Finance 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.