Correlation Between Dow Jones and Netcare
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Netcare 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 Netcare 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 Netcare, you can compare the effects of market volatilities on Dow Jones and Netcare 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 Netcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Netcare.
Diversification Opportunities for Dow Jones and Netcare
Poor diversification
The 3 months correlation between Dow and Netcare is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare 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 Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of Dow Jones i.e., Dow Jones and Netcare go up and down completely randomly.
Pair Corralation between Dow Jones and Netcare
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.68 times less return on investment than Netcare. But when comparing it to its historical volatility, Dow Jones Industrial is 1.92 times less risky than Netcare. It trades about 0.16 of its potential returns per unit of risk. Netcare is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 115,000 in Netcare on September 1, 2024 and sell it today you would earn a total of 33,000 from holding Netcare or generate 28.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Dow Jones Industrial vs. Netcare
Performance |
| Timeline |
Dow Jones and Netcare Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Netcare
Pair trading matchups for Netcare
Pair Trading with Dow Jones and Netcare
The main advantage of trading using opposite Dow Jones and Netcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Netcare 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 Netcare will offset losses from the drop in Netcare's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Netcare vs. HomeChoice Investments | Netcare vs. We Buy Cars | Netcare vs. Ascendis Health | Netcare vs. Astral Foods |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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