Correlation Between American Business and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Business and Dow Jones 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 American Business and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Business Bk and Dow Jones Industrial, you can compare the effects of market volatilities on American Business and Dow Jones 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 American Business with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Business and Dow Jones.
Diversification Opportunities for American Business and Dow Jones
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding American Business Bk and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and American Business 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 American Business Bk are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Business i.e., American Business and Dow Jones go up and down completely randomly.
Pair Corralation between American Business and Dow Jones
Given the investment horizon of 90 days American Business Bk is expected to generate 1.05 times more return on investment than Dow Jones. However, American Business is 1.05 times more volatile than Dow Jones Industrial. It trades about 0.52 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 per unit of risk. If you would invest 3,898 in American Business Bk on August 26, 2024 and sell it today you would earn a total of 467.00 from holding American Business Bk or generate 11.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Business Bk vs. Dow Jones Industrial
Performance |
| Timeline |
American Business and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Business Bk
Pair trading matchups for American Business
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Business and Dow Jones
The main advantage of trading using opposite American Business and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Business position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Business vs. Invesco High Income | American Business vs. Blackrock Muniholdings Ny | American Business vs. MFS Investment Grade | American Business vs. Federated Premier Municipal |
| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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