Correlation Between Dow Jones and Bright Rock
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Bright Rock 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 Bright Rock 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 Bright Rock Quality, you can compare the effects of market volatilities on Dow Jones and Bright Rock 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 Bright Rock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Bright Rock.
Diversification Opportunities for Dow Jones and Bright Rock
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Bright is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Bright Rock Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bright Rock Quality 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 Bright Rock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bright Rock Quality has no effect on the direction of Dow Jones i.e., Dow Jones and Bright Rock go up and down completely randomly.
Pair Corralation between Dow Jones and Bright Rock
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.11 times more return on investment than Bright Rock. However, Dow Jones is 1.11 times more volatile than Bright Rock Quality. It trades about 0.12 of its potential returns per unit of risk. Bright Rock Quality is currently generating about 0.12 per unit of risk. If you would invest 3,464,197 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,008,009 from holding Dow Jones Industrial or generate 29.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Bright Rock Quality
Performance |
| Timeline |
Dow Jones and Bright Rock Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Bright Rock Quality
Pair trading matchups for Bright Rock
Pair Trading with Dow Jones and Bright Rock
The main advantage of trading using opposite Dow Jones and Bright Rock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Bright Rock 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 Bright Rock will offset losses from the drop in Bright Rock's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Bright Rock vs. Versatile Bond Portfolio | Bright Rock vs. Nebraska Municipal Fund | Bright Rock vs. Barings Active Short | Bright Rock vs. Transamerica Emerging Markets |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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