Correlation Between Dow Jones and China Resources
Can any of the company-specific risk be diversified away by investing in both Dow Jones and China Resources 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 China Resources 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 China Resources Power, you can compare the effects of market volatilities on Dow Jones and China Resources 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 China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and China Resources.
Diversification Opportunities for Dow Jones and China Resources
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and China is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and China Resources Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Power 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 China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Power has no effect on the direction of Dow Jones i.e., Dow Jones and China Resources go up and down completely randomly.
Pair Corralation between Dow Jones and China Resources
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.44 times more return on investment than China Resources. However, Dow Jones Industrial is 2.3 times less risky than China Resources. It trades about -0.05 of its potential returns per unit of risk. China Resources Power is currently generating about -0.11 per unit of risk. If you would invest 4,306,522 in Dow Jones Industrial on October 14, 2024 and sell it today you would lose (112,677) from holding Dow Jones Industrial or give up 2.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 96.83% |
| Values | Daily Returns |
Dow Jones Industrial vs. China Resources Power
Performance |
| Timeline |
Dow Jones and China Resources Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
China Resources Power
Pair trading matchups for China Resources
Pair Trading with Dow Jones and China Resources
The main advantage of trading using opposite Dow Jones and China Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, China Resources 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 China Resources will offset losses from the drop in China Resources' long position.| Dow Jones vs. Chipotle Mexican Grill | Dow Jones vs. Teleflex Incorporated | Dow Jones vs. Dine Brands Global | Dow Jones vs. Alvotech |
| China Resources vs. Air Lease | China Resources vs. Lamar Advertising | China Resources vs. Luckin Coffee | China Resources vs. Lendlease 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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