Correlation Between Dow Jones and BP Prudhoe
Can any of the company-specific risk be diversified away by investing in both Dow Jones and BP Prudhoe 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 BP Prudhoe 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 BP Prudhoe Bay, you can compare the effects of market volatilities on Dow Jones and BP Prudhoe 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 BP Prudhoe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and BP Prudhoe.
Diversification Opportunities for Dow Jones and BP Prudhoe
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and BMI is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay 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 BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Dow Jones i.e., Dow Jones and BP Prudhoe go up and down completely randomly.
Pair Corralation between Dow Jones and BP Prudhoe
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.14 times more return on investment than BP Prudhoe. However, Dow Jones Industrial is 7.14 times less risky than BP Prudhoe. It trades about 0.15 of its potential returns per unit of risk. BP Prudhoe Bay is currently generating about -0.08 per unit of risk. If you would invest 3,409,586 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 1,081,479 from holding Dow Jones Industrial or generate 31.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 97.82% |
| Values | Daily Returns |
Dow Jones Industrial vs. BP Prudhoe Bay
Performance |
| Timeline |
Dow Jones and BP Prudhoe Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
BP Prudhoe Bay
Pair trading matchups for BP Prudhoe
Pair Trading with Dow Jones and BP Prudhoe
The main advantage of trading using opposite Dow Jones and BP Prudhoe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, BP Prudhoe 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 BP Prudhoe will offset losses from the drop in BP Prudhoe's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| BP Prudhoe vs. Superior Plus Corp | BP Prudhoe vs. NMI Holdings | BP Prudhoe vs. Origin Agritech | BP Prudhoe vs. SIVERS SEMICONDUCTORS AB |
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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