Correlation Between Dow Jones and First Western
Can any of the company-specific risk be diversified away by investing in both Dow Jones and First Western 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 First Western 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 First Western Financial, you can compare the effects of market volatilities on Dow Jones and First Western 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 First Western. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and First Western.
Diversification Opportunities for Dow Jones and First Western
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and First is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and First Western Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Western Financial 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 First Western. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Western Financial has no effect on the direction of Dow Jones i.e., Dow Jones and First Western go up and down completely randomly.
Pair Corralation between Dow Jones and First Western
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.25 times more return on investment than First Western. However, Dow Jones Industrial is 4.02 times less risky than First Western. It trades about 0.08 of its potential returns per unit of risk. First Western Financial is currently generating about -0.01 per unit of risk. If you would invest 3,359,634 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 1,070,017 from holding Dow Jones Industrial or generate 31.85% 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. First Western Financial
Performance |
| Timeline |
Dow Jones and First Western Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
First Western Financial
Pair trading matchups for First Western
Pair Trading with Dow Jones and First Western
The main advantage of trading using opposite Dow Jones and First Western positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, First Western 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 First Western will offset losses from the drop in First Western's long position.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
| First Western vs. Home Federal Bancorp | First Western vs. First Financial Northwest | First Western vs. First Northwest Bancorp | First Western vs. First Capital |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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