Correlation Between Federated Premier and Diamond Hill

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

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

Diversification Opportunities for Federated Premier and Diamond Hill

-0.25

Correlation Coefficient

Federated Premier  Diamond Hill

Very good diversification

The 3 months correlation between Federated and Diamond is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Federated Premier Municipal 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 Federated Premier 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 Federated Premier Municipal 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 Federated Premier i.e., Federated Premier and Diamond Hill go up and down completely randomly.

Pair Corralation between Federated Premier and Diamond Hill

Considering the 90-day investment horizon Federated Premier Municipal is expected to generate 0.44 times more return on investment than Diamond Hill. However, Federated Premier Municipal is 2.25 times less risky than Diamond Hill. It trades about 0.03 of its potential returns per unit of risk. Diamond Hill Investment is currently generating about -0.14 per unit of risk. If you would invest  1,081  in Federated Premier Municipal on January 4, 2025 and sell it today you would earn a total of  12.00  from holding Federated Premier Municipal or generate 1.11% return on investment over 90 days.

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

Federated Premier Municipal  vs.  Diamond Hill Investment

Federated Premier

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Premier Municipal are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy primary indicators, Federated Premier is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Diamond Hill Investment

Risk-Adjusted Performance

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 latest unfluctuating performance, the Stock's forward indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Federated Premier and Diamond Hill

The main advantage of trading using opposite Federated Premier and Diamond Hill positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Premier 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 Federated Premier Municipal 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.