Correlation Between DIA and AE
Can any of the company-specific risk be diversified away by investing in both DIA and AE 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 AE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DIA and AE, you can compare the effects of market volatilities on DIA and AE 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 AE. Check out your portfolio center. Please also check ongoing floating volatility patterns of DIA and AE.
Diversification Opportunities for DIA and AE
Good diversification
The 3 months correlation between DIA and AE is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding DIA and AE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AE 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 AE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AE has no effect on the direction of DIA i.e., DIA and AE go up and down completely randomly.
Pair Corralation between DIA and AE
Assuming the 90 days trading horizon DIA is expected to generate 1.84 times more return on investment than AE. However, DIA is 1.84 times more volatile than AE. It trades about 0.08 of its potential returns per unit of risk. AE is currently generating about 0.01 per unit of risk. If you would invest 53.00 in DIA on September 4, 2024 and sell it today you would earn a total of 41.00 from holding DIA or generate 77.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
DIA vs. AE
Performance |
| Timeline |
| DIA |
| AE |
DIA and AE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DIA and AE
The main advantage of trading using opposite DIA and AE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DIA position performs unexpectedly, AE 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 AE will offset losses from the drop in AE's long position.The idea behind DIA and AE 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.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
Other Complementary Tools
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
| Commodity Directory Find actively traded commodities issued by global exchanges |