Correlation Between Dow Jones and First Bank
Can any of the company-specific risk be diversified away by investing in both Dow Jones and First Bank 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 Bank 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 Bank, you can compare the effects of market volatilities on Dow Jones and First Bank 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 Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and First Bank.
Diversification Opportunities for Dow Jones and First Bank
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Dow and First is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and First Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Bank 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 Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Bank has no effect on the direction of Dow Jones i.e., Dow Jones and First Bank go up and down completely randomly.
Pair Corralation between Dow Jones and First Bank
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.37 times more return on investment than First Bank. However, Dow Jones Industrial is 2.73 times less risky than First Bank. It trades about 0.12 of its potential returns per unit of risk. First Bank is currently generating about 0.03 per unit of risk. If you would invest 3,640,493 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 837,707 from holding Dow Jones Industrial or generate 23.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Dow Jones Industrial vs. First Bank
Performance |
| Timeline |
Dow Jones and First Bank Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
First Bank
Pair trading matchups for First Bank
Pair Trading with Dow Jones and First Bank
The main advantage of trading using opposite Dow Jones and First Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, First Bank 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 Bank will offset losses from the drop in First Bank's long position.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
| First Bank vs. International Bancshares | First Bank vs. Finward Bancorp | First Bank vs. Community West Bancshares | First Bank vs. Aquagold International |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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