Correlation Between Dow Jones and National Capital
Can any of the company-specific risk be diversified away by investing in both Dow Jones and National Capital 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 National Capital 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 National Capital Bank, you can compare the effects of market volatilities on Dow Jones and National Capital 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 National Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and National Capital.
Diversification Opportunities for Dow Jones and National Capital
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and National is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and National Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Capital Bank 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 National Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Capital Bank has no effect on the direction of Dow Jones i.e., Dow Jones and National Capital go up and down completely randomly.
Pair Corralation between Dow Jones and National Capital
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.18 times more return on investment than National Capital. However, Dow Jones is 1.18 times more volatile than National Capital Bank. It trades about 0.34 of its potential returns per unit of risk. National Capital Bank is currently generating about 0.25 per unit of risk. If you would invest 4,239,227 in Dow Jones Industrial on November 3, 2024 and sell it today you would earn a total of 215,239 from holding Dow Jones Industrial or generate 5.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. National Capital Bank
Performance |
| Timeline |
Dow Jones and National Capital Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
National Capital Bank
Pair trading matchups for National Capital
Pair Trading with Dow Jones and National Capital
The main advantage of trading using opposite Dow Jones and National Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, National Capital 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 National Capital will offset losses from the drop in National Capital's long position.| Dow Jones vs. Cincinnati Financial | Dow Jones vs. Kellanova | Dow Jones vs. Acme United | Dow Jones vs. Procter Gamble |
| National Capital vs. Delhi Bank Corp | National Capital vs. CCSB Financial Corp | National Capital vs. Bank of Utica | National Capital vs. BEO Bancorp |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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