Correlation Between Dow Jones and K2 Gold
Can any of the company-specific risk be diversified away by investing in both Dow Jones and K2 Gold 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 K2 Gold 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 K2 Gold, you can compare the effects of market volatilities on Dow Jones and K2 Gold 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 K2 Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and K2 Gold.
Diversification Opportunities for Dow Jones and K2 Gold
Very weak diversification
The 3 months correlation between Dow and KTO is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and K2 Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K2 Gold 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 K2 Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K2 Gold has no effect on the direction of Dow Jones i.e., Dow Jones and K2 Gold go up and down completely randomly.
Pair Corralation between Dow Jones and K2 Gold
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.14 times less return on investment than K2 Gold. But when comparing it to its historical volatility, Dow Jones Industrial is 7.54 times less risky than K2 Gold. It trades about 0.29 of its potential returns per unit of risk. K2 Gold is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 13.00 in K2 Gold on August 31, 2024 and sell it today you would earn a total of 1.00 from holding K2 Gold or generate 7.69% 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. K2 Gold
Performance |
| Timeline |
Dow Jones and K2 Gold Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
K2 Gold
Pair trading matchups for K2 Gold
Pair Trading with Dow Jones and K2 Gold
The main advantage of trading using opposite Dow Jones and K2 Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, K2 Gold 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 K2 Gold will offset losses from the drop in K2 Gold's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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