Correlation Between Dow Jones and Micron Technology
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Micron Technology 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 Micron Technology 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 Micron Technology, you can compare the effects of market volatilities on Dow Jones and Micron Technology 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 Micron Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Micron Technology.
Diversification Opportunities for Dow Jones and Micron Technology
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Micron is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Micron Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Micron Technology 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 Micron Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Micron Technology has no effect on the direction of Dow Jones i.e., Dow Jones and Micron Technology go up and down completely randomly.
Pair Corralation between Dow Jones and Micron Technology
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.55 times less return on investment than Micron Technology. But when comparing it to its historical volatility, Dow Jones Industrial is 3.71 times less risky than Micron Technology. It trades about 0.08 of its potential returns per unit of risk. Micron Technology is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,421 in Micron Technology on August 30, 2024 and sell it today you would earn a total of 4,399 from holding Micron Technology or generate 81.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Micron Technology
Performance |
| Timeline |
Dow Jones and Micron Technology Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Micron Technology
Pair trading matchups for Micron Technology
Pair Trading with Dow Jones and Micron Technology
The main advantage of trading using opposite Dow Jones and Micron Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Micron Technology 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 Micron Technology will offset losses from the drop in Micron Technology's long position.| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
| Micron Technology vs. First Solar | Micron Technology vs. Sunrun Inc | Micron Technology vs. Canadian Solar | Micron Technology vs. SolarEdge Technologies |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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