Correlation Between Dow Jones and NEO
Can any of the company-specific risk be diversified away by investing in both Dow Jones and NEO 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 NEO 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 NEO, you can compare the effects of market volatilities on Dow Jones and NEO 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 NEO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and NEO.
Diversification Opportunities for Dow Jones and NEO
Poor diversification
The 3 months correlation between Dow and NEO is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and NEO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEO 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 NEO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEO has no effect on the direction of Dow Jones i.e., Dow Jones and NEO go up and down completely randomly.
Pair Corralation between Dow Jones and NEO
Assuming the 90 days trading horizon Dow Jones is expected to generate 8.32 times less return on investment than NEO. But when comparing it to its historical volatility, Dow Jones Industrial is 4.82 times less risky than NEO. It trades about 0.16 of its potential returns per unit of risk. NEO is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 985.00 in NEO on August 30, 2024 and sell it today you would earn a total of 536.00 from holding NEO or generate 54.42% 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. NEO
Performance |
| Timeline |
Dow Jones and NEO Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
NEO
Pair trading matchups for NEO
Pair Trading with Dow Jones and NEO
The main advantage of trading using opposite Dow Jones and NEO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, NEO 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 NEO will offset losses from the drop in NEO's long position.| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
Other Complementary Tools
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments |