Correlation Between Dow Jones and Gold Resource
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Gold Resource 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 Gold Resource 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 Gold Resource, you can compare the effects of market volatilities on Dow Jones and Gold Resource 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 Gold Resource. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Gold Resource.
Diversification Opportunities for Dow Jones and Gold Resource
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Gold is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Gold Resource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Resource 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 Gold Resource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Resource has no effect on the direction of Dow Jones i.e., Dow Jones and Gold Resource go up and down completely randomly.
Pair Corralation between Dow Jones and Gold Resource
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.35 times less return on investment than Gold Resource. But when comparing it to its historical volatility, Dow Jones Industrial is 9.05 times less risky than Gold Resource. It trades about 0.27 of its potential returns per unit of risk. Gold Resource is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 16.00 in Gold Resource on August 30, 2024 and sell it today you would earn a total of 1.00 from holding Gold Resource or generate 6.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. Gold Resource
Performance |
| Timeline |
Dow Jones and Gold Resource Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Gold Resource
Pair trading matchups for Gold Resource
Pair Trading with Dow Jones and Gold Resource
The main advantage of trading using opposite Dow Jones and Gold Resource positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Gold Resource 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 Gold Resource will offset losses from the drop in Gold Resource's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Gold Resource vs. IAMGold | Gold Resource vs. Eldorado Gold Corp | Gold Resource vs. Coeur Mining | Gold Resource vs. Alamos Gold |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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