Correlation Between Core and DIA

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Can any of the company-specific risk be diversified away by investing in both Core and DIA 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 Core and DIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Core and DIA, you can compare the effects of market volatilities on Core and DIA 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 Core with a short position of DIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core and DIA.

Diversification Opportunities for Core and DIA

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Core and DIA is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Core and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and Core 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 Core are associated (or correlated) with DIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIA has no effect on the direction of Core i.e., Core and DIA go up and down completely randomly.

Pair Corralation between Core and DIA

Assuming the 90 days trading horizon Core is expected to under-perform the DIA. But the crypto coin apears to be less risky and, when comparing its historical volatility, Core is 1.28 times less risky than DIA. The crypto coin trades about 0.0 of its potential returns per unit of risk. The DIA is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  36.00  in DIA on April 16, 2025 and sell it today you would earn a total of  7.00  from holding DIA or generate 19.44% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Core  vs.  DIA

 Performance 
       Timeline  
Core 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Core has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Core is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
DIA 

Risk-Adjusted Performance

OK

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Core and DIA Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Core and DIA

The main advantage of trading using opposite Core and DIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core position performs unexpectedly, DIA 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 DIA will offset losses from the drop in DIA's long position.
The idea behind Core and DIA 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.
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 Valuation module to check real value of public entities based on technical and fundamental data.

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