Correlation Between Dow Jones and First Bancshares
Can any of the company-specific risk be diversified away by investing in both Dow Jones and First Bancshares 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 First Bancshares 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 First Bancshares, you can compare the effects of market volatilities on Dow Jones and First Bancshares 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 First Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and First Bancshares.
Diversification Opportunities for Dow Jones and First Bancshares
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and First is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bancshares 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 First Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bancshares has no effect on the direction of Dow Jones i.e., Dow Jones and First Bancshares go up and down completely randomly.
Pair Corralation between Dow Jones and First Bancshares
Assuming the 90 days trading horizon Dow Jones is expected to generate 4.0 times less return on investment than First Bancshares. But when comparing it to its historical volatility, Dow Jones Industrial is 2.01 times less risky than First Bancshares. It trades about 0.12 of its potential returns per unit of risk. First Bancshares is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,065 in First Bancshares on August 31, 2024 and sell it today you would earn a total of 210.00 from holding First Bancshares or generate 10.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 8.56% |
| Values | Daily Returns |
Dow Jones Industrial vs. First Bancshares
Performance |
| Timeline |
Dow Jones and First Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
First Bancshares
Pair trading matchups for First Bancshares
Pair Trading with Dow Jones and First Bancshares
The main advantage of trading using opposite Dow Jones and First Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, First Bancshares 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 First Bancshares will offset losses from the drop in First Bancshares' 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 |
| First Bancshares vs. Lewis Clark Bancorp | First Bancshares vs. Bank of Idaho | First Bancshares vs. Community Heritage Financial | First Bancshares vs. National Capital Bank |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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