Correlation Between Dow Jones and Digital Brands
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Digital Brands 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 Digital Brands 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 Digital Brands Group, you can compare the effects of market volatilities on Dow Jones and Digital Brands 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 Digital Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Digital Brands.
Diversification Opportunities for Dow Jones and Digital Brands
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Dow and Digital is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Digital Brands Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Brands Group 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 Digital Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Brands Group has no effect on the direction of Dow Jones i.e., Dow Jones and Digital Brands go up and down completely randomly.
Pair Corralation between Dow Jones and Digital Brands
Assuming the 90 days trading horizon Dow Jones is expected to generate 12.39 times less return on investment than Digital Brands. But when comparing it to its historical volatility, Dow Jones Industrial is 28.37 times less risky than Digital Brands. It trades about 0.37 of its potential returns per unit of risk. Digital Brands Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 1,300 in Digital Brands Group on September 1, 2024 and sell it today you would earn a total of 360.00 from holding Digital Brands Group or generate 27.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 85.71% |
| Values | Daily Returns |
Dow Jones Industrial vs. Digital Brands Group
Performance |
| Timeline |
Dow Jones and Digital Brands Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Digital Brands Group
Pair trading matchups for Digital Brands
Pair Trading with Dow Jones and Digital Brands
The main advantage of trading using opposite Dow Jones and Digital Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Digital Brands 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 Digital Brands will offset losses from the drop in Digital Brands' long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Digital Brands vs. Digital Brands Group | Digital Brands vs. Data Storage | Digital Brands vs. DatChat Series A |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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