Correlation Between Dow Jones and British American
Can any of the company-specific risk be diversified away by investing in both Dow Jones and British American 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 British American 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 British American Tobacco, you can compare the effects of market volatilities on Dow Jones and British American 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 British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and British American.
Diversification Opportunities for Dow Jones and British American
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and British is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Dow Jones i.e., Dow Jones and British American go up and down completely randomly.
Pair Corralation between Dow Jones and British American
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.6 times less return on investment than British American. But when comparing it to its historical volatility, Dow Jones Industrial is 1.8 times less risky than British American. It trades about 0.16 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,766 in British American Tobacco on September 1, 2024 and sell it today you would earn a total of 774.00 from holding British American Tobacco or generate 27.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 96.18% |
| Values | Daily Returns |
Dow Jones Industrial vs. British American Tobacco
Performance |
| Timeline |
Dow Jones and British American Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
British American Tobacco
Pair trading matchups for British American
Pair Trading with Dow Jones and British American
The main advantage of trading using opposite Dow Jones and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, British American 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 British American will offset losses from the drop in British American's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| British American vs. Pebblebrook Hotel Trust | British American vs. MTI WIRELESS EDGE | British American vs. Xenia Hotels Resorts | British American vs. MIRAMAR HOTEL INV |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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