Correlation Between Dow Jones and American West
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American West 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 West 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 West Metals, you can compare the effects of market volatilities on Dow Jones and American West 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 West. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American West.
Diversification Opportunities for Dow Jones and American West
-0.8 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dow and American is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American West Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American West Metals 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 West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American West Metals has no effect on the direction of Dow Jones i.e., Dow Jones and American West go up and down completely randomly.
Pair Corralation between Dow Jones and American West
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.28 times more return on investment than American West. However, Dow Jones Industrial is 3.6 times less risky than American West. It trades about 0.37 of its potential returns per unit of risk. American West Metals is currently generating about -0.39 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. American West Metals
Performance |
| Timeline |
Dow Jones and American West Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American West Metals
Pair trading matchups for American West
Pair Trading with Dow Jones and American West
The main advantage of trading using opposite Dow Jones and American West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American West 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 West will offset losses from the drop in American West's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| American West vs. Westpac Banking | American West vs. Pinnacle Investment Management | American West vs. Wt Financial Group | American West vs. Regal Funds Management |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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