Correlation Between Dow Jones and Gas
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Gas 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 Gas 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 Gas, you can compare the effects of market volatilities on Dow Jones and Gas 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 Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Gas.
Diversification Opportunities for Dow Jones and Gas
Poor diversification
The 3 months correlation between Dow and Gas is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gas 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 Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gas has no effect on the direction of Dow Jones i.e., Dow Jones and Gas go up and down completely randomly.
Pair Corralation between Dow Jones and Gas
Assuming the 90 days trading horizon Dow Jones is expected to generate 6.18 times less return on investment than Gas. But when comparing it to its historical volatility, Dow Jones Industrial is 5.6 times less risky than Gas. It trades about 0.22 of its potential returns per unit of risk. Gas is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 405.00 in Gas on August 27, 2024 and sell it today you would earn a total of 114.00 from holding Gas or generate 28.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Gas
Performance |
| Timeline |
Dow Jones and Gas Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Gas
Pair trading matchups for Gas
Pair Trading with Dow Jones and Gas
The main advantage of trading using opposite Dow Jones and Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Gas 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 Gas will offset losses from the drop in Gas' long position.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Alpha Finder Use alpha and beta coefficients to find investment opportunities after accounting for the risk | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges |