Correlation Between Dow Jones and Citic
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Citic 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 Citic 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 Citic Ltd ADR, you can compare the effects of market volatilities on Dow Jones and Citic 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 Citic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Citic.
Diversification Opportunities for Dow Jones and Citic
Poor diversification
The 3 months correlation between Dow and Citic is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Citic Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citic Ltd ADR 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 Citic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citic Ltd ADR has no effect on the direction of Dow Jones i.e., Dow Jones and Citic go up and down completely randomly.
Pair Corralation between Dow Jones and Citic
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.27 times less return on investment than Citic. But when comparing it to its historical volatility, Dow Jones Industrial is 5.12 times less risky than Citic. It trades about 0.14 of its potential returns per unit of risk. Citic Ltd ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 496.00 in Citic Ltd ADR on August 25, 2024 and sell it today you would earn a total of 111.00 from holding Citic Ltd ADR or generate 22.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.85% |
| Values | Daily Returns |
Dow Jones Industrial vs. Citic Ltd ADR
Performance |
| Timeline |
Dow Jones and Citic Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Citic Ltd ADR
Pair trading matchups for Citic
Pair Trading with Dow Jones and Citic
The main advantage of trading using opposite Dow Jones and Citic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Citic 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 Citic will offset losses from the drop in Citic's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Citic vs. Honeywell International | Citic vs. MDU Resources Group | Citic vs. Compass Diversified Holdings | Citic vs. Valmont Industries |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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