Correlation Between Dow Jones and Electro Sensors
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Electro Sensors 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 Electro Sensors 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 Electro Sensors, you can compare the effects of market volatilities on Dow Jones and Electro Sensors 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 Electro Sensors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Electro Sensors.
Diversification Opportunities for Dow Jones and Electro Sensors
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Electro is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors 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 Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of Dow Jones i.e., Dow Jones and Electro Sensors go up and down completely randomly.
Pair Corralation between Dow Jones and Electro Sensors
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.84 times less return on investment than Electro Sensors. But when comparing it to its historical volatility, Dow Jones Industrial is 2.53 times less risky than Electro Sensors. It trades about 0.29 of its potential returns per unit of risk. Electro Sensors is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 390.00 in Electro Sensors on August 31, 2024 and sell it today you would earn a total of 41.00 from holding Electro Sensors or generate 10.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Electro Sensors
Performance |
| Timeline |
Dow Jones and Electro Sensors Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Electro Sensors
Pair trading matchups for Electro Sensors
Pair Trading with Dow Jones and Electro Sensors
The main advantage of trading using opposite Dow Jones and Electro Sensors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Electro Sensors 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 Electro Sensors will offset losses from the drop in Electro Sensors' long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Electro Sensors vs. Sono Tek Corp | Electro Sensors vs. Vishay Precision Group | Electro Sensors vs. Keyence | Electro Sensors vs. Luna Innovations Incorporated |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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