Correlation Between Dow Jones and Power Financial
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Power Financial 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 Financial 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 Financial 51, you can compare the effects of market volatilities on Dow Jones and Power Financial 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 Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Power Financial.
Diversification Opportunities for Dow Jones and Power Financial
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Power is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Power Financial 51 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Financial 51 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 Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Financial 51 has no effect on the direction of Dow Jones i.e., Dow Jones and Power Financial go up and down completely randomly.
Pair Corralation between Dow Jones and Power Financial
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.97 times more return on investment than Power Financial. However, Dow Jones Industrial is 1.03 times less risky than Power Financial. It trades about 0.16 of its potential returns per unit of risk. Power Financial 51 is currently generating about 0.11 per unit of risk. If you would invest 3,292,896 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 1,136,755 from holding Dow Jones Industrial or generate 34.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Power Financial 51
Performance |
| Timeline |
Dow Jones and Power Financial Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Power Financial 51
Pair trading matchups for Power Financial
Pair Trading with Dow Jones and Power Financial
The main advantage of trading using opposite Dow Jones and Power Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Power Financial 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 Financial will offset losses from the drop in Power Financial's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Power Financial vs. VIP Entertainment Technologies | Power Financial vs. Cogeco Communications | Power Financial vs. TGS Esports | Power Financial vs. Verizon Communications CDR |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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