Correlation Between Dow Jones and AECI
Can any of the company-specific risk be diversified away by investing in both Dow Jones and AECI 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 AECI 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 AECI, you can compare the effects of market volatilities on Dow Jones and AECI 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 AECI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and AECI.
Diversification Opportunities for Dow Jones and AECI
Pay attention - limited upside
The 3 months correlation between Dow and AECI is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and AECI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AECI 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 AECI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AECI has no effect on the direction of Dow Jones i.e., Dow Jones and AECI go up and down completely randomly.
Pair Corralation between Dow Jones and AECI
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.97 times more return on investment than AECI. However, Dow Jones Industrial is 1.03 times less risky than AECI. It trades about 0.15 of its potential returns per unit of risk. AECI is currently generating about -0.09 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. AECI
Performance |
| Timeline |
Dow Jones and AECI Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
AECI
Pair trading matchups for AECI
Pair Trading with Dow Jones and AECI
The main advantage of trading using opposite Dow Jones and AECI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, AECI 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 AECI will offset losses from the drop in AECI's long position.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| AECI vs. Harmony Gold Mining | AECI vs. Capitec Bank Holdings | AECI vs. Kumba Iron Ore | AECI vs. E Media Holdings |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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