Correlation Between Dow Jones and Southern Rubber
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Southern Rubber 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 Southern Rubber 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 Southern Rubber Industry, you can compare the effects of market volatilities on Dow Jones and Southern Rubber 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 Southern Rubber. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Southern Rubber.
Diversification Opportunities for Dow Jones and Southern Rubber
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and Southern is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Southern Rubber Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Rubber Industry 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 Southern Rubber. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Rubber Industry has no effect on the direction of Dow Jones i.e., Dow Jones and Southern Rubber go up and down completely randomly.
Pair Corralation between Dow Jones and Southern Rubber
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.29 times less return on investment than Southern Rubber. But when comparing it to its historical volatility, Dow Jones Industrial is 3.22 times less risky than Southern Rubber. It trades about 0.29 of its potential returns per unit of risk. Southern Rubber Industry is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 1,135,000 in Southern Rubber Industry on August 31, 2024 and sell it today you would earn a total of 235,000 from holding Southern Rubber Industry or generate 20.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Southern Rubber Industry
Performance |
| Timeline |
Dow Jones and Southern Rubber Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Southern Rubber Industry
Pair trading matchups for Southern Rubber
Pair Trading with Dow Jones and Southern Rubber
The main advantage of trading using opposite Dow Jones and Southern Rubber positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Southern Rubber 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 Southern Rubber will offset losses from the drop in Southern Rubber's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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