Correlation Between Dow Jones and Alpine High

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Can any of the company-specific risk be diversified away by investing in both Dow Jones and Alpine High 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 Alpine High 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 Alpine High Yield, you can compare the effects of market volatilities on Dow Jones and Alpine High 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 Alpine High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Alpine High.

Diversification Opportunities for Dow Jones and Alpine High

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dow and Alpine is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Alpine High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alpine High Yield 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 Alpine High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alpine High Yield has no effect on the direction of Dow Jones i.e., Dow Jones and Alpine High go up and down completely randomly.
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Pair Corralation between Dow Jones and Alpine High

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 3.97 times more return on investment than Alpine High. However, Dow Jones is 3.97 times more volatile than Alpine High Yield. It trades about 0.12 of its potential returns per unit of risk. Alpine High Yield is currently generating about 0.09 per unit of risk. If you would invest  3,383,361  in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of  1,107,704  from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dow Jones Industrial  vs.  Alpine High Yield

 Performance 
       Timeline  

Dow Jones and Alpine High Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow Jones and Alpine High

The main advantage of trading using opposite Dow Jones and Alpine High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Alpine High 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 Alpine High will offset losses from the drop in Alpine High's long position.
The idea behind Dow Jones Industrial and Alpine High Yield pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.

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