Correlation Between Dow Jones and Commodity Return
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Commodity Return 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 Commodity Return 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 Commodity Return Strategy, you can compare the effects of market volatilities on Dow Jones and Commodity Return 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 Commodity Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Commodity Return.
Diversification Opportunities for Dow Jones and Commodity Return
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Commodity is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Commodity Return Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commodity Return Strategy 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 Commodity Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commodity Return Strategy has no effect on the direction of Dow Jones i.e., Dow Jones and Commodity Return go up and down completely randomly.
Pair Corralation between Dow Jones and Commodity Return
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.31 times more return on investment than Commodity Return. However, Dow Jones is 1.31 times more volatile than Commodity Return Strategy. It trades about 0.37 of its potential returns per unit of risk. Commodity Return Strategy is currently generating about 0.01 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Commodity Return Strategy
Performance |
| Timeline |
Dow Jones and Commodity Return Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Commodity Return Strategy
Pair trading matchups for Commodity Return
Pair Trading with Dow Jones and Commodity Return
The main advantage of trading using opposite Dow Jones and Commodity Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Commodity Return 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 Commodity Return will offset losses from the drop in Commodity Return's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Commodity Return vs. Credit Suisse Floating | Commodity Return vs. Credit Suisse Floating | Commodity Return vs. Credit Suisse Modity | Commodity Return vs. Credit Suisse Modity |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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