Correlation Between Dow Jones and Ferrum SA
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Ferrum SA 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 Ferrum SA 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 Ferrum SA, you can compare the effects of market volatilities on Dow Jones and Ferrum SA 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 Ferrum SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Ferrum SA.
Diversification Opportunities for Dow Jones and Ferrum SA
Very good diversification
The 3 months correlation between Dow and Ferrum is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Ferrum SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrum SA 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 Ferrum SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrum SA has no effect on the direction of Dow Jones i.e., Dow Jones and Ferrum SA go up and down completely randomly.
Pair Corralation between Dow Jones and Ferrum SA
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.53 times less return on investment than Ferrum SA. But when comparing it to its historical volatility, Dow Jones Industrial is 3.11 times less risky than Ferrum SA. It trades about 0.17 of its potential returns per unit of risk. Ferrum SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4,100 in Ferrum SA on October 24, 2024 and sell it today you would earn a total of 145.00 from holding Ferrum SA or generate 3.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Ferrum SA
Performance |
| Timeline |
Dow Jones and Ferrum SA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Ferrum SA
Pair trading matchups for Ferrum SA
Pair Trading with Dow Jones and Ferrum SA
The main advantage of trading using opposite Dow Jones and Ferrum SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Ferrum SA 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 Ferrum SA will offset losses from the drop in Ferrum SA's long position.| Dow Jones vs. Transocean | Dow Jones vs. Noble plc | Dow Jones vs. Evolution Gaming Group | Dow Jones vs. Addus HomeCare |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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