Correlation Between SIX and DIA

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

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

Diversification Opportunities for SIX and DIA

-0.03

Correlation Coefficient

SIX  DIA

Good diversification

The 3 months correlation between SIX and DIA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding SIX and DIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIA and SIX 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 SIX 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 SIX i.e., SIX and DIA go up and down completely randomly.

Pair Corralation between SIX and DIA

Assuming the 90 days trading horizon SIX is expected to generate 1.95 times less return on investment than DIA. But when comparing it to its historical volatility, SIX is 1.39 times less risky than DIA. It trades about 0.08 of its potential returns per unit of risk. DIA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  42.00  in DIA on April 20, 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

SIX  vs.  DIA

SIX

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SIX are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, SIX exhibited solid returns over the last few months and may actually be approaching a breakup point.

DIA

Risk-Adjusted Performance

Insignificant

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.

Pair Trading with SIX and DIA

The main advantage of trading using opposite SIX and DIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIX 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 SIX 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.