Correlation Between Dow Jones and Energy
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Energy 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 Energy 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 Energy and Water, you can compare the effects of market volatilities on Dow Jones and Energy 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 Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Energy.
Diversification Opportunities for Dow Jones and Energy
Pay attention - limited upside
The 3 months correlation between Dow and Energy is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Energy and Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy and Water 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 Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy and Water has no effect on the direction of Dow Jones i.e., Dow Jones and Energy go up and down completely randomly.
Pair Corralation between Dow Jones and Energy
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.06 times more return on investment than Energy. However, Dow Jones Industrial is 18.05 times less risky than Energy. It trades about 0.12 of its potential returns per unit of risk. Energy and Water is currently generating about -0.06 per unit of risk. If you would invest 3,624,550 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 805,101 from holding Dow Jones Industrial or generate 22.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Energy and Water
Performance |
| Timeline |
Dow Jones and Energy Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Energy and Water
Pair trading matchups for Energy
Pair Trading with Dow Jones and Energy
The main advantage of trading using opposite Dow Jones and Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Energy 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 Energy will offset losses from the drop in Energy's long position.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
| Energy vs. TOMI Environmental Solutions | Energy vs. Zurn Elkay Water | Energy vs. Federal Signal | Energy vs. Energy Recovery |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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