Correlation Between Dow Jones and International Petroleum
Can any of the company-specific risk be diversified away by investing in both Dow Jones and International Petroleum 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 Petroleum 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 Petroleum, you can compare the effects of market volatilities on Dow Jones and International Petroleum 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 Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and International Petroleum.
Diversification Opportunities for Dow Jones and International Petroleum
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between Dow and International is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and International Petroleum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Petroleum 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 Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Petroleum has no effect on the direction of Dow Jones i.e., Dow Jones and International Petroleum go up and down completely randomly.
Pair Corralation between Dow Jones and International Petroleum
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.44 times less return on investment than International Petroleum. But when comparing it to its historical volatility, Dow Jones Industrial is 2.74 times less risky than International Petroleum. It trades about 0.04 of its potential returns per unit of risk. International Petroleum is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 958.00 in International Petroleum on January 19, 2025 and sell it today you would earn a total of 476.00 from holding International Petroleum or generate 49.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. International Petroleum
Performance |
| Timeline |
Dow Jones and International Petroleum Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
International Petroleum
Pair trading matchups for International Petroleum
Pair Trading with Dow Jones and International Petroleum
The main advantage of trading using opposite Dow Jones and International Petroleum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, International Petroleum 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 Petroleum will offset losses from the drop in International Petroleum's long position.| Dow Jones vs. Emerson Electric | Dow Jones vs. Ambipar Emergency Response | Dow Jones vs. ChampionX | Dow Jones vs. Primoris Services |
| International Petroleum vs. Sabine Royalty Trust | International Petroleum vs. Mesa Royalty Trust | International Petroleum vs. San Juan Basin | International Petroleum vs. Permian Basin Royalty |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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