Correlation Between Dow Jones and Berkshire Hathaway
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Berkshire Hathaway 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 Berkshire Hathaway 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 Berkshire Hathaway, you can compare the effects of market volatilities on Dow Jones and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Berkshire Hathaway.
Diversification Opportunities for Dow Jones and Berkshire Hathaway
-0.45 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Berkshire is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of Dow Jones i.e., Dow Jones and Berkshire Hathaway go up and down completely randomly.
Pair Corralation between Dow Jones and Berkshire Hathaway
Assuming the 90 days trading horizon Dow Jones is expected to generate 137.82 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, Dow Jones Industrial is 231.74 times less risky than Berkshire Hathaway. It trades about 0.37 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 62,700,000 in Berkshire Hathaway on September 1, 2024 and sell it today you would earn a total of 5,450,000 from holding Berkshire Hathaway or generate 8.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Berkshire Hathaway
Performance |
| Timeline |
Dow Jones and Berkshire Hathaway Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Berkshire Hathaway
Pair trading matchups for Berkshire Hathaway
Pair Trading with Dow Jones and Berkshire Hathaway
The main advantage of trading using opposite Dow Jones and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Berkshire Hathaway vs. Berkshire Hathaway | Berkshire Hathaway vs. Zurich Insurance Group | Berkshire Hathaway vs. Sun Life Financial | Berkshire Hathaway vs. Arch Capital Group |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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