Correlation Between Dow Jones and American Hotel
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Hotel 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 American Hotel 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 American Hotel Income, you can compare the effects of market volatilities on Dow Jones and American Hotel 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 American Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Hotel.
Diversification Opportunities for Dow Jones and American Hotel
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and American is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income 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 American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of Dow Jones i.e., Dow Jones and American Hotel go up and down completely randomly.
Pair Corralation between Dow Jones and American Hotel
Assuming the 90 days trading horizon Dow Jones is expected to generate 13.99 times less return on investment than American Hotel. But when comparing it to its historical volatility, Dow Jones Industrial is 7.55 times less risky than American Hotel. It trades about 0.17 of its potential returns per unit of risk. American Hotel Income is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 46.00 in American Hotel Income on October 20, 2024 and sell it today you would earn a total of 17.00 from holding American Hotel Income or generate 36.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Hotel Income
Performance |
| Timeline |
Dow Jones and American Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Hotel Income
Pair trading matchups for American Hotel
Pair Trading with Dow Jones and American Hotel
The main advantage of trading using opposite Dow Jones and American Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Hotel 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 American Hotel will offset losses from the drop in American Hotel's long position.| Dow Jones vs. SkyWest | Dow Jones vs. Air Transport Services | Dow Jones vs. LATAM Airlines Group | Dow Jones vs. Emerson Radio |
| American Hotel vs. Advent Wireless | American Hotel vs. TUT Fitness Group | American Hotel vs. Computer Modelling Group | American Hotel vs. Andlauer Healthcare Gr |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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