Correlation Between Dow Jones and International Business
Can any of the company-specific risk be diversified away by investing in both Dow Jones and International Business 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 International Business 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 International Business Machines, you can compare the effects of market volatilities on Dow Jones and International Business 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 International Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and International Business.
Diversification Opportunities for Dow Jones and International Business
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and International is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and International Business Machine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Business 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 International Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Business has no effect on the direction of Dow Jones i.e., Dow Jones and International Business go up and down completely randomly.
Pair Corralation between Dow Jones and International Business
Assuming the 90 days trading horizon Dow Jones is expected to generate 61.43 times less return on investment than International Business. But when comparing it to its historical volatility, Dow Jones Industrial is 2.85 times less risky than International Business. It trades about 0.01 of its potential returns per unit of risk. International Business Machines is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest 19,610 in International Business Machines on September 19, 2024 and sell it today you would earn a total of 2,180 from holding International Business Machines or generate 11.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. International Business Machine
Performance |
| Timeline |
Dow Jones and International Business Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
International Business Machines
Pair trading matchups for International Business
Pair Trading with Dow Jones and International Business
The main advantage of trading using opposite Dow Jones and International Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, International Business 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 International Business will offset losses from the drop in International Business' long position.| Dow Jones vs. Mangazeya Mining | Dow Jones vs. Summit Materials | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. AMCON Distributing |
| International Business vs. Ramsay Health Care | International Business vs. Carnegie Clean Energy | International Business vs. NAKED WINES PLC | International Business vs. Sabra Health Care |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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