Correlation Between Dow Jones and EBay
Can any of the company-specific risk be diversified away by investing in both Dow Jones and EBay 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 EBay 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 eBay Inc, you can compare the effects of market volatilities on Dow Jones and EBay 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 EBay. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and EBay.
Diversification Opportunities for Dow Jones and EBay
Poor diversification
The 3 months correlation between Dow and EBay is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Dow Jones i.e., Dow Jones and EBay go up and down completely randomly.
Pair Corralation between Dow Jones and EBay
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.69 times less return on investment than EBay. But when comparing it to its historical volatility, Dow Jones Industrial is 2.7 times less risky than EBay. It trades about 0.08 of its potential returns per unit of risk. eBay Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 4,120 in eBay Inc on September 2, 2024 and sell it today you would earn a total of 1,928 from holding eBay Inc or generate 46.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.57% |
| Values | Daily Returns |
Dow Jones Industrial vs. eBay Inc
Performance |
| Timeline |
Dow Jones and EBay Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
eBay Inc
Pair trading matchups for EBay
Pair Trading with Dow Jones and EBay
The main advantage of trading using opposite Dow Jones and EBay positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, EBay 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 EBay will offset losses from the drop in EBay's long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| EBay vs. SLR Investment Corp | EBay vs. Elmos Semiconductor SE | EBay vs. SPARTAN STORES | EBay vs. AOYAMA TRADING |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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