Correlation Between Dow Jones and Payden Limited
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Payden Limited 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 Payden Limited 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 Payden Limited Maturity, you can compare the effects of market volatilities on Dow Jones and Payden Limited 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 Payden Limited. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Payden Limited.
Diversification Opportunities for Dow Jones and Payden Limited
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Dow and Payden is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Payden Limited Maturity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Limited Maturity 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 Payden Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Limited Maturity has no effect on the direction of Dow Jones i.e., Dow Jones and Payden Limited go up and down completely randomly.
Pair Corralation between Dow Jones and Payden Limited
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 8.11 times more return on investment than Payden Limited. However, Dow Jones is 8.11 times more volatile than Payden Limited Maturity. It trades about 0.17 of its potential returns per unit of risk. Payden Limited Maturity is currently generating about 0.24 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 | Insignificant |
| Accuracy | 94.74% |
| Values | Daily Returns |
Dow Jones Industrial vs. Payden Limited Maturity
Performance |
| Timeline |
Dow Jones and Payden Limited Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Payden Limited Maturity
Pair trading matchups for Payden Limited
Pair Trading with Dow Jones and Payden Limited
The main advantage of trading using opposite Dow Jones and Payden Limited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Payden Limited 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 Payden Limited will offset losses from the drop in Payden Limited's long position.| Dow Jones vs. Transocean | Dow Jones vs. Noble plc | Dow Jones vs. Evolution Gaming Group | Dow Jones vs. Addus HomeCare |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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