Correlation Between Dow Jones and Newretail
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Newretail 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 Newretail 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 Newretail Co, you can compare the effects of market volatilities on Dow Jones and Newretail 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 Newretail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Newretail.
Diversification Opportunities for Dow Jones and Newretail
Very poor diversification
The 3 months correlation between Dow and Newretail is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Newretail Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newretail 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 Newretail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newretail has no effect on the direction of Dow Jones i.e., Dow Jones and Newretail go up and down completely randomly.
Pair Corralation between Dow Jones and Newretail
Assuming the 90 days trading horizon Dow Jones is expected to generate 4.22 times less return on investment than Newretail. But when comparing it to its historical volatility, Dow Jones Industrial is 6.1 times less risky than Newretail. It trades about 0.17 of its potential returns per unit of risk. Newretail Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,480 in Newretail Co on August 28, 2024 and sell it today you would earn a total of 1,090 from holding Newretail Co or generate 73.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Newretail Co
Performance |
| Timeline |
Dow Jones and Newretail Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Newretail Co
Pair trading matchups for Newretail
Pair Trading with Dow Jones and Newretail
The main advantage of trading using opposite Dow Jones and Newretail positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Newretail 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 Newretail will offset losses from the drop in Newretail'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 |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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