Correlation Between Dow Jones and Impax Environmental
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Impax Environmental 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 Impax Environmental 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 Impax Environmental Markets, you can compare the effects of market volatilities on Dow Jones and Impax Environmental 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 Impax Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Impax Environmental.
Diversification Opportunities for Dow Jones and Impax Environmental
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Impax is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Impax Environmental Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impax Environmental 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 Impax Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impax Environmental has no effect on the direction of Dow Jones i.e., Dow Jones and Impax Environmental go up and down completely randomly.
Pair Corralation between Dow Jones and Impax Environmental
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.71 times more return on investment than Impax Environmental. However, Dow Jones Industrial is 1.42 times less risky than Impax Environmental. It trades about 0.08 of its potential returns per unit of risk. Impax Environmental Markets is currently generating about -0.03 per unit of risk. If you would invest 3,203,011 in Dow Jones Industrial on December 11, 2024 and sell it today you would earn a total of 988,160 from holding Dow Jones Industrial or generate 30.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.4% |
| Values | Daily Returns |
Dow Jones Industrial vs. Impax Environmental Markets
Performance |
| Timeline |
Dow Jones and Impax Environmental Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Impax Environmental Markets
Pair trading matchups for Impax Environmental
Pair Trading with Dow Jones and Impax Environmental
The main advantage of trading using opposite Dow Jones and Impax Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Impax Environmental 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 Impax Environmental will offset losses from the drop in Impax Environmental's long position.| Dow Jones vs. GMO Internet | ||
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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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