Correlation Between DIA and XWC

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

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

Diversification Opportunities for DIA and XWC

0.02

Correlation Coefficient

DIA  XWC

Significant diversification

The 3 months correlation between DIA and XWC is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding DIA and XWC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XWC 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 XWC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XWC has no effect on the direction of DIA i.e., DIA and XWC go up and down completely randomly.

Pair Corralation between DIA and XWC

Assuming the 90 days trading horizon DIA is expected to generate 6.98 times more return on investment than XWC. However, DIA is 6.98 times more volatile than XWC. It trades about 0.16 of its potential returns per unit of risk. XWC is currently generating about 0.21 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  62.00  from holding DIA or generate 137.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

DIA  vs.  XWC

DIA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in DIA are ranked lower than 12 (%) 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.

XWC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in XWC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, XWC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIA and XWC

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

The idea behind DIA and XWC 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.