Correlation Between Dow Jones and American Coastal
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Coastal 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 American Coastal 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 American Coastal Insurance, you can compare the effects of market volatilities on Dow Jones and American Coastal 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 American Coastal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Coastal.
Diversification Opportunities for Dow Jones and American Coastal
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and American is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Coastal Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Coastal Ins 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 American Coastal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Coastal Ins has no effect on the direction of Dow Jones i.e., Dow Jones and American Coastal go up and down completely randomly.
Pair Corralation between Dow Jones and American Coastal
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.92 times less return on investment than American Coastal. But when comparing it to its historical volatility, Dow Jones Industrial is 4.47 times less risky than American Coastal. It trades about 0.12 of its potential returns per unit of risk. American Coastal Insurance is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,131 in American Coastal Insurance on September 3, 2024 and sell it today you would earn a total of 242.00 from holding American Coastal Insurance or generate 21.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Coastal Insurance
Performance |
| Timeline |
Dow Jones and American Coastal Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Coastal Insurance
Pair trading matchups for American Coastal
Pair Trading with Dow Jones and American Coastal
The main advantage of trading using opposite Dow Jones and American Coastal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Coastal 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 American Coastal will offset losses from the drop in American Coastal's long position.| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
| American Coastal vs. Avient Corp | American Coastal vs. NL Industries | American Coastal vs. The Mosaic | American Coastal vs. Hawkins |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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