Correlation Between Dow Jones and Deep Value
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Deep Value 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 Deep Value 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 Deep Value Driller, you can compare the effects of market volatilities on Dow Jones and Deep Value 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 Deep Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Deep Value.
Diversification Opportunities for Dow Jones and Deep Value
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Deep is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Deep Value Driller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deep Value Driller 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 Deep Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deep Value Driller has no effect on the direction of Dow Jones i.e., Dow Jones and Deep Value go up and down completely randomly.
Pair Corralation between Dow Jones and Deep Value
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.38 times more return on investment than Deep Value. However, Dow Jones Industrial is 2.63 times less risky than Deep Value. It trades about 0.14 of its potential returns per unit of risk. Deep Value Driller is currently generating about -0.09 per unit of risk. If you would invest 3,885,286 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 544,365 from holding Dow Jones Industrial or generate 14.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.95% |
| Values | Daily Returns |
Dow Jones Industrial vs. Deep Value Driller
Performance |
| Timeline |
Dow Jones and Deep Value Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Deep Value Driller
Pair trading matchups for Deep Value
Pair Trading with Dow Jones and Deep Value
The main advantage of trading using opposite Dow Jones and Deep Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Deep Value 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 Deep Value will offset losses from the drop in Deep Value'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 |
| Deep Value vs. Shelf Drilling | Deep Value vs. BW Offshore | Deep Value vs. Elkem ASA | Deep Value vs. Solstad Offsho |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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