Correlation Between Dow Jones and Element Solutions
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Element Solutions 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 Element Solutions 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 Element Solutions, you can compare the effects of market volatilities on Dow Jones and Element Solutions 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 Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Element Solutions.
Diversification Opportunities for Dow Jones and Element Solutions
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Element is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Dow Jones i.e., Dow Jones and Element Solutions go up and down completely randomly.
Pair Corralation between Dow Jones and Element Solutions
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Element Solutions. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 2.11 times less risky than Element Solutions. The index trades about -0.13 of its potential returns per unit of risk. The Element Solutions is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 2,592 in Element Solutions on September 20, 2024 and sell it today you would lose (52.00) from holding Element Solutions or give up 2.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Element Solutions
Performance |
| Timeline |
Dow Jones and Element Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Element Solutions
Pair trading matchups for Element Solutions
Pair Trading with Dow Jones and Element Solutions
The main advantage of trading using opposite Dow Jones and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Element Solutions 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 Element Solutions will offset losses from the drop in Element Solutions' long position.| Dow Jones vs. Digi International | Dow Jones vs. Grupo Televisa SAB | Dow Jones vs. United Microelectronics | Dow Jones vs. Weibo Corp |
| Element Solutions vs. GFL ENVIRONM | Element Solutions vs. RELIANCE STEEL AL | Element Solutions vs. Entravision Communications | Element Solutions vs. Caltagirone SpA |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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