Correlation Between Dow Jones and Russel Metals
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Russel Metals 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 Russel Metals 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 Russel Metals, you can compare the effects of market volatilities on Dow Jones and Russel Metals 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 Russel Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Russel Metals.
Diversification Opportunities for Dow Jones and Russel Metals
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Russel is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals 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 Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of Dow Jones i.e., Dow Jones and Russel Metals go up and down completely randomly.
Pair Corralation between Dow Jones and Russel Metals
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.24 times less return on investment than Russel Metals. But when comparing it to its historical volatility, Dow Jones Industrial is 2.01 times less risky than Russel Metals. It trades about 0.14 of its potential returns per unit of risk. Russel Metals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,799 in Russel Metals on August 25, 2024 and sell it today you would earn a total of 625.00 from holding Russel Metals or generate 16.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Russel Metals
Performance |
| Timeline |
Dow Jones and Russel Metals Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Russel Metals
Pair trading matchups for Russel Metals
Pair Trading with Dow Jones and Russel Metals
The main advantage of trading using opposite Dow Jones and Russel Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Russel Metals 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 Russel Metals will offset losses from the drop in Russel Metals' 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 |
| Russel Metals vs. Finning International | Russel Metals vs. Transcontinental | Russel Metals vs. Toromont Industries | Russel Metals vs. IGM Financial |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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