Correlation Between DIA and CVC

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

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

Diversification Opportunities for DIA and CVC

0.45

Correlation Coefficient

DIA  CVC

Very weak diversification

The 3 months correlation between DIA and CVC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding DIA and CVC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVC 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 CVC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVC has no effect on the direction of DIA i.e., DIA and CVC go up and down completely randomly.

Pair Corralation between DIA and CVC

Assuming the 90 days trading horizon DIA is expected to generate 1.24 times more return on investment than CVC. However, DIA is 1.24 times more volatile than CVC. It trades about 0.11 of its potential returns per unit of risk. CVC is currently generating about 0.03 per unit of risk. If you would invest  42.00  in DIA on April 21, 2025 and sell it today you would earn a total of  20.00  from holding DIA or generate 47.62% return on investment over 90 days.

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

DIA  vs.  CVC

DIA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 8 (%) 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.

CVC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CVC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, CVC may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with DIA and CVC

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

The idea behind DIA and CVC 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.