Correlation Between Dow Jones and IShares Oil
Can any of the company-specific risk be diversified away by investing in both Dow Jones and IShares Oil 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 IShares Oil 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 iShares Oil Equipment, you can compare the effects of market volatilities on Dow Jones and IShares Oil 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 IShares Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and IShares Oil.
Diversification Opportunities for Dow Jones and IShares Oil
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and IShares is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and iShares Oil Equipment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Oil Equipment 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 IShares Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Oil Equipment has no effect on the direction of Dow Jones i.e., Dow Jones and IShares Oil go up and down completely randomly.
Pair Corralation between Dow Jones and IShares Oil
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.38 times more return on investment than IShares Oil. However, Dow Jones Industrial is 2.63 times less risky than IShares Oil. It trades about 0.09 of its potential returns per unit of risk. iShares Oil Equipment is currently generating about 0.01 per unit of risk. If you would invest 3,363,061 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 1,110,596 from holding Dow Jones Industrial or generate 33.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. iShares Oil Equipment
Performance |
| Timeline |
Dow Jones and IShares Oil Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
iShares Oil Equipment
Pair trading matchups for IShares Oil
Pair Trading with Dow Jones and IShares Oil
The main advantage of trading using opposite Dow Jones and IShares Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, IShares Oil 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 IShares Oil will offset losses from the drop in IShares Oil's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| IShares Oil vs. EA Series Trust | IShares Oil vs. EA Series Trust | IShares Oil vs. Rumble Inc | IShares Oil vs. EA Series Trust |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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