Correlation Between Dow Jones and CRDTS
Can any of the company-specific risk be diversified away by investing in both Dow Jones and CRDTS 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 CRDTS 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 CRDTS, you can compare the effects of market volatilities on Dow Jones and CRDTS 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 CRDTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and CRDTS.
Diversification Opportunities for Dow Jones and CRDTS
Very weak diversification
The 3 months correlation between Dow and CRDTS is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and CRDTS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRDTS 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 CRDTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRDTS has no effect on the direction of Dow Jones i.e., Dow Jones and CRDTS go up and down completely randomly.
Pair Corralation between Dow Jones and CRDTS
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.05 times more return on investment than CRDTS. However, Dow Jones Industrial is 22.05 times less risky than CRDTS. It trades about -0.21 of its potential returns per unit of risk. CRDTS is currently generating about -0.1 per unit of risk. If you would invest 4,471,358 in Dow Jones Industrial on November 28, 2024 and sell it today you would lose (128,046) from holding Dow Jones Industrial or give up 2.86% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. CRDTS
Performance |
| Timeline |
Dow Jones and CRDTS Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
CRDTS
Pair trading matchups for CRDTS
Pair Trading with Dow Jones and CRDTS
The main advantage of trading using opposite Dow Jones and CRDTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, CRDTS 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 CRDTS will offset losses from the drop in CRDTS's long position.| Dow Jones vs. Gladstone Investment | Dow Jones vs. BW Offshore Limited | Dow Jones vs. Fidus Investment Corp | Dow Jones vs. Aperture Health |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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