Correlation Between Dow Jones and American Homes
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Homes 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 Homes 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 Homes 4, you can compare the effects of market volatilities on Dow Jones and American Homes 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 Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Homes.
Diversification Opportunities for Dow Jones and American Homes
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Dow and American is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Dow Jones i.e., Dow Jones and American Homes go up and down completely randomly.
Pair Corralation between Dow Jones and American Homes
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.33 times more return on investment than American Homes. However, Dow Jones is 1.33 times more volatile than American Homes 4. It trades about 0.34 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.03 per unit of risk. If you would invest 4,205,219 in Dow Jones Industrial on September 2, 2024 and sell it today you would earn a total of 285,846 from holding Dow Jones Industrial or generate 6.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Homes 4
Performance |
| Timeline |
Dow Jones and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Homes 4
Pair trading matchups for American Homes
Pair Trading with Dow Jones and American Homes
The main advantage of trading using opposite Dow Jones and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Homes 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 Homes will offset losses from the drop in American Homes' long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| American Homes vs. American Homes 4 | American Homes vs. BRT Realty Trust | American Homes vs. Nexpoint Residential Trust | American Homes vs. Centerspace |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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