Correlation Between Dow Jones and Bank Central
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Bank Central 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 Bank Central 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 Bank Central Asia, you can compare the effects of market volatilities on Dow Jones and Bank Central 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 Bank Central. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Bank Central.
Diversification Opportunities for Dow Jones and Bank Central
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Bank is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Bank Central Asia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Central Asia 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 Bank Central. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Central Asia has no effect on the direction of Dow Jones i.e., Dow Jones and Bank Central go up and down completely randomly.
Pair Corralation between Dow Jones and Bank Central
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.7 times more return on investment than Bank Central. However, Dow Jones Industrial is 1.43 times less risky than Bank Central. It trades about 0.29 of its potential returns per unit of risk. Bank Central Asia is currently generating about -0.1 per unit of risk. If you would invest 4,214,154 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 258,052 from holding Dow Jones Industrial or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Bank Central Asia
Performance |
| Timeline |
Dow Jones and Bank Central Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Bank Central Asia
Pair trading matchups for Bank Central
Pair Trading with Dow Jones and Bank Central
The main advantage of trading using opposite Dow Jones and Bank Central positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Bank Central 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 Bank Central will offset losses from the drop in Bank Central's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Bank Central vs. Bank Rakyat Indonesia | Bank Central vs. Bank Mandiri Persero | Bank Central vs. Bank Negara Indonesia | Bank Central vs. Astra International Tbk |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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