Correlation Between Dow Jones and Industrial Bank
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Industrial Bank 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 Dow Jones and Industrial Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Industrial Bank, you can compare the effects of market volatilities on Dow Jones and Industrial Bank 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 Dow Jones with a short position of Industrial Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Industrial Bank.
Diversification Opportunities for Dow Jones and Industrial Bank
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Industrial is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Industrial Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Bank and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Industrial Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Bank has no effect on the direction of Dow Jones i.e., Dow Jones and Industrial Bank go up and down completely randomly.
Pair Corralation between Dow Jones and Industrial Bank
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.64 times less return on investment than Industrial Bank. But when comparing it to its historical volatility, Dow Jones Industrial is 1.79 times less risky than Industrial Bank. It trades about 0.11 of its potential returns per unit of risk. Industrial Bank is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 942,803 in Industrial Bank on August 29, 2024 and sell it today you would earn a total of 526,197 from holding Industrial Bank or generate 55.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.95% |
| Values | Daily Returns |
Dow Jones Industrial vs. Industrial Bank
Performance |
| Timeline |
Dow Jones and Industrial Bank Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Industrial Bank
Pair trading matchups for Industrial Bank
Pair Trading with Dow Jones and Industrial Bank
The main advantage of trading using opposite Dow Jones and Industrial Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Industrial Bank 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 Industrial Bank will offset losses from the drop in Industrial Bank's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Industrial Bank vs. Shinhan Inverse Copper | Industrial Bank vs. Insung Information Co | Industrial Bank vs. Bohae Brewery | Industrial Bank vs. Shinsegae Information Communication |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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