Correlation Between Dow Jones and Adidas AG
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Adidas AG 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 Adidas AG 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 adidas AG, you can compare the effects of market volatilities on Dow Jones and Adidas AG 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 Adidas AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Adidas AG.
Diversification Opportunities for Dow Jones and Adidas AG
Good diversification
The 3 months correlation between Dow and Adidas is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Dow Jones i.e., Dow Jones and Adidas AG go up and down completely randomly.
Pair Corralation between Dow Jones and Adidas AG
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.35 times less return on investment than Adidas AG. But when comparing it to its historical volatility, Dow Jones Industrial is 2.65 times less risky than Adidas AG. It trades about 0.12 of its potential returns per unit of risk. adidas AG is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 15,854 in adidas AG on August 31, 2024 and sell it today you would earn a total of 6,456 from holding adidas AG or generate 40.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.16% |
| Values | Daily Returns |
Dow Jones Industrial vs. adidas AG
Performance |
| Timeline |
Dow Jones and Adidas AG Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
adidas AG
Pair trading matchups for Adidas AG
Pair Trading with Dow Jones and Adidas AG
The main advantage of trading using opposite Dow Jones and Adidas AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Adidas AG 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 Adidas AG will offset losses from the drop in Adidas AG's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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