Correlation Between Dow Jones and POCC
Can any of the company-specific risk be diversified away by investing in both Dow Jones and POCC 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 POCC 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 POCC, you can compare the effects of market volatilities on Dow Jones and POCC 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 POCC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and POCC.
Diversification Opportunities for Dow Jones and POCC
Poor diversification
The 3 months correlation between Dow and POCC is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and POCC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POCC 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 POCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POCC has no effect on the direction of Dow Jones i.e., Dow Jones and POCC go up and down completely randomly.
Pair Corralation between Dow Jones and POCC
Assuming the 90 days trading horizon Dow Jones is expected to generate 163.33 times less return on investment than POCC. But when comparing it to its historical volatility, Dow Jones Industrial is 139.21 times less risky than POCC. It trades about 0.08 of its potential returns per unit of risk. POCC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 0.04 in POCC on August 27, 2024 and sell it today you would lose (0.02) from holding POCC or give up 59.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 60.28% |
| Values | Daily Returns |
Dow Jones Industrial vs. POCC
Performance |
| Timeline |
Dow Jones and POCC Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
POCC
Pair trading matchups for POCC
Pair Trading with Dow Jones and POCC
The main advantage of trading using opposite Dow Jones and POCC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, POCC 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 POCC will offset losses from the drop in POCC's long position.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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