Correlation Between Dow Jones and AMP
Can any of the company-specific risk be diversified away by investing in both Dow Jones and AMP 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 AMP 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 AMP, you can compare the effects of market volatilities on Dow Jones and AMP 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 AMP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and AMP.
Diversification Opportunities for Dow Jones and AMP
Very poor diversification
The 3 months correlation between Dow and AMP is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and AMP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMP 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 AMP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMP has no effect on the direction of Dow Jones i.e., Dow Jones and AMP go up and down completely randomly.
Pair Corralation between Dow Jones and AMP
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.48 times less return on investment than AMP. But when comparing it to its historical volatility, Dow Jones Industrial is 3.57 times less risky than AMP. It trades about 0.1 of its potential returns per unit of risk. AMP is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 58.00 in AMP on September 12, 2024 and sell it today you would earn a total of 37.00 from holding AMP or generate 63.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.05% |
| Values | Daily Returns |
Dow Jones Industrial vs. AMP
Performance |
| Timeline |
Dow Jones and AMP Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
AMP
Pair trading matchups for AMP
Pair Trading with Dow Jones and AMP
The main advantage of trading using opposite Dow Jones and AMP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, AMP 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 AMP will offset losses from the drop in AMP's long position.| Dow Jones vs. Aeye Inc | Dow Jones vs. Gentex | Dow Jones vs. Marine Products | Dow Jones vs. CarsalesCom Ltd ADR |
| AMP vs. STRAYER EDUCATION | AMP vs. STMicroelectronics NV | AMP vs. American Public Education | AMP vs. KIMBALL ELECTRONICS |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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