Correlation Between Class III and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Class III 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 Class III and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Class III Milk and Dow Jones Industrial, you can compare the effects of market volatilities on Class III 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 Class III with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Class III and Dow Jones.
Diversification Opportunities for Class III and Dow Jones
Excellent diversification
The 3 months correlation between Class and Dow is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Class III Milk 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 Class III 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 Class III Milk 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 Class III i.e., Class III and Dow Jones go up and down completely randomly.
Pair Corralation between Class III and Dow Jones
Assuming the 90 days horizon Class III Milk is expected to under-perform the Dow Jones. In addition to that, Class III is 1.54 times more volatile than Dow Jones Industrial. It trades about -0.27 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.29 per unit of volatility. If you would invest 4,214,154 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 258,052 from holding Dow Jones Industrial or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Class III Milk vs. Dow Jones Industrial
Performance |
| Timeline |
Class III and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Class III Milk
Pair trading matchups for Class III
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Class III and Dow Jones
The main advantage of trading using opposite Class III and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Class III 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.| Class III vs. Natural Gas | Class III vs. Orange Juice | Class III vs. Micro Gold Futures | Class III vs. Crude Oil |
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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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