Correlation Between Dow Jones and Asia Opportunity
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Asia Opportunity 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 Asia Opportunity 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 Asia Opportunity Portfolio, you can compare the effects of market volatilities on Dow Jones and Asia Opportunity 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 Asia Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Asia Opportunity.
Diversification Opportunities for Dow Jones and Asia Opportunity
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Dow and Asia is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Asia Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Opportunity Por 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 Asia Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Opportunity Por has no effect on the direction of Dow Jones i.e., Dow Jones and Asia Opportunity go up and down completely randomly.
Pair Corralation between Dow Jones and Asia Opportunity
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.57 times more return on investment than Asia Opportunity. However, Dow Jones Industrial is 1.75 times less risky than Asia Opportunity. It trades about 0.08 of its potential returns per unit of risk. Asia Opportunity Portfolio is currently generating about 0.03 per unit of risk. If you would invest 3,324,156 in Dow Jones Industrial on September 16, 2024 and sell it today you would earn a total of 1,058,650 from holding Dow Jones Industrial or generate 31.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Asia Opportunity Portfolio
Performance |
| Timeline |
Dow Jones and Asia Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Asia Opportunity Portfolio
Pair trading matchups for Asia Opportunity
Pair Trading with Dow Jones and Asia Opportunity
The main advantage of trading using opposite Dow Jones and Asia Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Asia Opportunity 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 Asia Opportunity will offset losses from the drop in Asia Opportunity's long position.| Dow Jones vs. Ironveld Plc | Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Mid Atlantic Home Health | Dow Jones vs. United Homes Group |
| Asia Opportunity vs. Emerging Markets Equity | Asia Opportunity vs. Global Fixed Income | Asia Opportunity vs. Global Fixed Income | Asia Opportunity vs. Global Fixed Income |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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