Correlation Between Dow Jones and Cabot
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Cabot 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 Cabot 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 Cabot, you can compare the effects of market volatilities on Dow Jones and Cabot 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 Cabot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Cabot.
Diversification Opportunities for Dow Jones and Cabot
Very poor diversification
The 3 months correlation between Dow and Cabot is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Dow Jones i.e., Dow Jones and Cabot go up and down completely randomly.
Pair Corralation between Dow Jones and Cabot
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.44 times more return on investment than Cabot. However, Dow Jones Industrial is 2.26 times less risky than Cabot. It trades about 0.26 of its potential returns per unit of risk. Cabot is currently generating about 0.07 per unit of risk. If you would invest 4,238,757 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 234,900 from holding Dow Jones Industrial or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Cabot
Performance |
| Timeline |
Dow Jones and Cabot Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Cabot
Pair trading matchups for Cabot
Pair Trading with Dow Jones and Cabot
The main advantage of trading using opposite Dow Jones and Cabot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Cabot 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 Cabot will offset losses from the drop in Cabot's long position.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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