Correlation Between Dow Jones and Power Metal
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Power Metal 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 Power Metal 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 Power Metal Resources, you can compare the effects of market volatilities on Dow Jones and Power Metal 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 Power Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Power Metal.
Diversification Opportunities for Dow Jones and Power Metal
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Power is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Power Metal Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Metal Resources 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 Power Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Metal Resources has no effect on the direction of Dow Jones i.e., Dow Jones and Power Metal go up and down completely randomly.
Pair Corralation between Dow Jones and Power Metal
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.36 times more return on investment than Power Metal. However, Dow Jones Industrial is 2.8 times less risky than Power Metal. It trades about 0.17 of its potential returns per unit of risk. Power Metal Resources is currently generating about -0.21 per unit of risk. If you would invest 4,290,695 in Dow Jones Industrial on October 24, 2024 and sell it today you would earn a total of 111,886 from holding Dow Jones Industrial or generate 2.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Power Metal Resources
Performance |
| Timeline |
Dow Jones and Power Metal Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Power Metal Resources
Pair trading matchups for Power Metal
Pair Trading with Dow Jones and Power Metal
The main advantage of trading using opposite Dow Jones and Power Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Power Metal 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 Power Metal will offset losses from the drop in Power Metal's long position.| Dow Jones vs. Transocean | Dow Jones vs. Noble plc | Dow Jones vs. Evolution Gaming Group | Dow Jones vs. Addus HomeCare |
| Power Metal vs. Silvercorp Metals | Power Metal vs. Take Two Interactive Software | Power Metal vs. Check Point Software | Power Metal vs. Evolution Gaming Group |
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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