Correlation Between Dow Jones and SOS
Can any of the company-specific risk be diversified away by investing in both Dow Jones and SOS 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 SOS 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 SOS LTD A, you can compare the effects of market volatilities on Dow Jones and SOS 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 SOS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and SOS.
Diversification Opportunities for Dow Jones and SOS
Significant diversification
The 3 months correlation between Dow and SOS is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and SOS LTD A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOS LTD A 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 SOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOS LTD A has no effect on the direction of Dow Jones i.e., Dow Jones and SOS go up and down completely randomly.
Pair Corralation between Dow Jones and SOS
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.51 times less return on investment than SOS. But when comparing it to its historical volatility, Dow Jones Industrial is 5.89 times less risky than SOS. It trades about 0.17 of its potential returns per unit of risk. SOS LTD A is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 660.00 in SOS LTD A on October 20, 2024 and sell it today you would earn a total of 40.00 from holding SOS LTD A or generate 6.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 76.19% |
| Values | Daily Returns |
Dow Jones Industrial vs. SOS LTD A
Performance |
| Timeline |
Dow Jones and SOS Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
SOS LTD A
Pair trading matchups for SOS
Pair Trading with Dow Jones and SOS
The main advantage of trading using opposite Dow Jones and SOS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, SOS 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 SOS will offset losses from the drop in SOS's long position.| Dow Jones vs. SkyWest | Dow Jones vs. Air Transport Services | Dow Jones vs. LATAM Airlines Group | Dow Jones vs. Emerson Radio |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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