Correlation Between Dow Jones and North American
Can any of the company-specific risk be diversified away by investing in both Dow Jones and North American 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 North American 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 The North American, you can compare the effects of market volatilities on Dow Jones and North American 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 North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and North American.
Diversification Opportunities for Dow Jones and North American
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and North is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and The North American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American 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 North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American has no effect on the direction of Dow Jones i.e., Dow Jones and North American go up and down completely randomly.
Pair Corralation between Dow Jones and North American
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the North American. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.39 times less risky than North American. The index trades about -0.25 of its potential returns per unit of risk. The The North American is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 33,322 in The North American on October 9, 2024 and sell it today you would lose (122.00) from holding The North American or give up 0.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. The North American
Performance |
| Timeline |
Dow Jones and North American Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
The North American
Pair trading matchups for North American
Pair Trading with Dow Jones and North American
The main advantage of trading using opposite Dow Jones and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.| Dow Jones vs. Apogee Therapeutics, Common | Dow Jones vs. Spyre Therapeutics | Dow Jones vs. Lion One Metals | Dow Jones vs. Vulcan Materials |
| North American vs. SupplyMe Capital PLC | North American vs. SM Energy Co | North American vs. FuelCell Energy | North American vs. Grand Vision Media |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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