Correlation Between Dow Jones and Regional Bank
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Regional 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 Regional 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 Regional Bank Fund, you can compare the effects of market volatilities on Dow Jones and Regional 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 Regional Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Regional Bank.
Diversification Opportunities for Dow Jones and Regional Bank
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and REGIONAL is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Regional Bank Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional 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 Regional Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Bank has no effect on the direction of Dow Jones i.e., Dow Jones and Regional Bank go up and down completely randomly.
Pair Corralation between Dow Jones and Regional Bank
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.92 times less return on investment than Regional Bank. But when comparing it to its historical volatility, Dow Jones Industrial is 3.11 times less risky than Regional Bank. It trades about 0.37 of its potential returns per unit of risk. Regional Bank Fund is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,964 in Regional Bank Fund on September 1, 2024 and sell it today you would earn a total of 421.00 from holding Regional Bank Fund or generate 14.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Regional Bank Fund
Performance |
| Timeline |
Dow Jones and Regional Bank Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Regional Bank Fund
Pair trading matchups for Regional Bank
Pair Trading with Dow Jones and Regional Bank
The main advantage of trading using opposite Dow Jones and Regional Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Regional 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 Regional Bank will offset losses from the drop in Regional Bank's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Regional Bank vs. Jhancock Global Equity | Regional Bank vs. Global Equity Fund | Regional Bank vs. Jhancock Global Equity | Regional Bank vs. Jhancock Global Equity |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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