Correlation Between Dow Jones and Louisiana Pacific
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Louisiana Pacific 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 Louisiana Pacific 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 Louisiana Pacific, you can compare the effects of market volatilities on Dow Jones and Louisiana Pacific 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 Louisiana Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Louisiana Pacific.
Diversification Opportunities for Dow Jones and Louisiana Pacific
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Louisiana is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Louisiana Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Louisiana Pacific 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 Louisiana Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Louisiana Pacific has no effect on the direction of Dow Jones i.e., Dow Jones and Louisiana Pacific go up and down completely randomly.
Pair Corralation between Dow Jones and Louisiana Pacific
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.97 times less return on investment than Louisiana Pacific. But when comparing it to its historical volatility, Dow Jones Industrial is 2.31 times less risky than Louisiana Pacific. It trades about 0.22 of its potential returns per unit of risk. Louisiana Pacific is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 10,195 in Louisiana Pacific on August 27, 2024 and sell it today you would earn a total of 1,394 from holding Louisiana Pacific or generate 13.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Louisiana Pacific
Performance |
| Timeline |
Dow Jones and Louisiana Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Louisiana Pacific
Pair trading matchups for Louisiana Pacific
Pair Trading with Dow Jones and Louisiana Pacific
The main advantage of trading using opposite Dow Jones and Louisiana Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Louisiana Pacific 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 Louisiana Pacific will offset losses from the drop in Louisiana Pacific's long position.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
| Louisiana Pacific vs. Lennox International | Louisiana Pacific vs. Fortune Brands Innovations | Louisiana Pacific vs. Trane Technologies plc | Louisiana Pacific vs. Johnson Controls International |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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