Correlation Between Dow Jones and Fuel Tech
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Fuel Tech 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 Fuel Tech 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 Fuel Tech, you can compare the effects of market volatilities on Dow Jones and Fuel Tech 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 Fuel Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Fuel Tech.
Diversification Opportunities for Dow Jones and Fuel Tech
Weak diversification
The 3 months correlation between Dow and Fuel is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Fuel Tech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuel Tech 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 Fuel Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuel Tech has no effect on the direction of Dow Jones i.e., Dow Jones and Fuel Tech go up and down completely randomly.
Pair Corralation between Dow Jones and Fuel Tech
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.27 times more return on investment than Fuel Tech. However, Dow Jones Industrial is 3.66 times less risky than Fuel Tech. It trades about 0.08 of its potential returns per unit of risk. Fuel Tech is currently generating about -0.02 per unit of risk. If you would invest 3,371,709 in Dow Jones Industrial on October 20, 2024 and sell it today you would earn a total of 977,074 from holding Dow Jones Industrial or generate 28.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. Fuel Tech
Performance |
| Timeline |
Dow Jones and Fuel Tech Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Fuel Tech
Pair trading matchups for Fuel Tech
Pair Trading with Dow Jones and Fuel Tech
The main advantage of trading using opposite Dow Jones and Fuel Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Fuel Tech 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 Fuel Tech will offset losses from the drop in Fuel Tech's long position.| Dow Jones vs. Aluminum of | Dow Jones vs. Adtalem Global Education | Dow Jones vs. East Africa Metals | Dow Jones vs. Western Copper and |
| Fuel Tech vs. Federal Signal | Fuel Tech vs. CECO Environmental Corp | Fuel Tech vs. Zurn Elkay Water | Fuel Tech vs. Greenlane Renewables |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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