Correlation Between DIA and BTM

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

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

Diversification Opportunities for DIA and BTM

-0.27

Correlation Coefficient

DIA  BTM

Very good diversification

The 3 months correlation between DIA and BTM is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding DIA and BTM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BTM and DIA 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 DIA are associated (or correlated) with BTM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BTM has no effect on the direction of DIA i.e., DIA and BTM go up and down completely randomly.

Pair Corralation between DIA and BTM

Assuming the 90 days trading horizon DIA is expected to generate 0.71 times more return on investment than BTM. However, DIA is 1.4 times less risky than BTM. It trades about 0.13 of its potential returns per unit of risk. BTM is currently generating about 0.09 per unit of risk. If you would invest  45.00  in DIA on April 24, 2025 and sell it today you would earn a total of  42.00  from holding DIA or generate 93.33% return on investment over 90 days.

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

DIA  vs.  BTM

DIA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, DIA exhibited solid returns over the last few months and may actually be approaching a breakup point.

BTM

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BTM are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, BTM exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIA and BTM

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

The idea behind DIA and BTM 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..