Correlation Between Dow Jones and China Shenhua
Can any of the company-specific risk be diversified away by investing in both Dow Jones and China Shenhua 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 China Shenhua 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 China Shenhua Energy, you can compare the effects of market volatilities on Dow Jones and China Shenhua 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 China Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and China Shenhua.
Diversification Opportunities for Dow Jones and China Shenhua
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and China is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy 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 China Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Dow Jones i.e., Dow Jones and China Shenhua go up and down completely randomly.
Pair Corralation between Dow Jones and China Shenhua
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.35 times more return on investment than China Shenhua. However, Dow Jones Industrial is 2.88 times less risky than China Shenhua. It trades about 0.37 of its potential returns per unit of risk. China Shenhua Energy is currently generating about -0.04 per unit of risk. If you would invest 4,179,460 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 298,740 from holding Dow Jones Industrial or generate 7.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
Dow Jones Industrial vs. China Shenhua Energy
Performance |
| Timeline |
Dow Jones and China Shenhua Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
China Shenhua Energy
Pair trading matchups for China Shenhua
Pair Trading with Dow Jones and China Shenhua
The main advantage of trading using opposite Dow Jones and China Shenhua positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, China Shenhua 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 China Shenhua will offset losses from the drop in China Shenhua's long position.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
| China Shenhua vs. PT Bayan Resources | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. Yanzhou Coal Mining | China Shenhua vs. PT Adaro Energy |
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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