Correlation Between Dow Jones and Critical Elements
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Critical Elements 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 Critical Elements 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 Critical Elements, you can compare the effects of market volatilities on Dow Jones and Critical Elements 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 Critical Elements. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Critical Elements.
Diversification Opportunities for Dow Jones and Critical Elements
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and Critical is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Critical Elements in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Critical Elements 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 Critical Elements. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Critical Elements has no effect on the direction of Dow Jones i.e., Dow Jones and Critical Elements go up and down completely randomly.
Pair Corralation between Dow Jones and Critical Elements
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.25 times more return on investment than Critical Elements. However, Dow Jones Industrial is 3.95 times less risky than Critical Elements. It trades about 0.37 of its potential returns per unit of risk. Critical Elements is currently generating about -0.42 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 | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Critical Elements
Performance |
| Timeline |
Dow Jones and Critical Elements Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Critical Elements
Pair trading matchups for Critical Elements
Pair Trading with Dow Jones and Critical Elements
The main advantage of trading using opposite Dow Jones and Critical Elements positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Critical Elements 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 Critical Elements will offset losses from the drop in Critical Elements' long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Critical Elements vs. Argosy Minerals Limited | Critical Elements vs. Aurelia Metals Limited | Critical Elements vs. Artemis Resources | Critical Elements vs. Ascendant Resources |
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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