Correlation Between Dow Jones and SCE Trust
Can any of the company-specific risk be diversified away by investing in both Dow Jones and SCE Trust 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 SCE Trust 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 SCE Trust VI, you can compare the effects of market volatilities on Dow Jones and SCE Trust 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 SCE Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and SCE Trust.
Diversification Opportunities for Dow Jones and SCE Trust
Poor diversification
The 3 months correlation between Dow and SCE is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and SCE Trust VI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SCE Trust VI 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 SCE Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SCE Trust VI has no effect on the direction of Dow Jones i.e., Dow Jones and SCE Trust go up and down completely randomly.
Pair Corralation between Dow Jones and SCE Trust
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.36 times more return on investment than SCE Trust. However, Dow Jones is 1.36 times more volatile than SCE Trust VI. It trades about 0.16 of its potential returns per unit of risk. SCE Trust VI is currently generating about 0.06 per unit of risk. If you would invest 4,233,015 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 239,191 from holding Dow Jones Industrial or generate 5.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. SCE Trust VI
Performance |
| Timeline |
Dow Jones and SCE Trust Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
SCE Trust VI
Pair trading matchups for SCE Trust
Pair Trading with Dow Jones and SCE Trust
The main advantage of trading using opposite Dow Jones and SCE Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, SCE Trust 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 SCE Trust will offset losses from the drop in SCE Trust's long position.| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
| SCE Trust vs. Dominion Energy | SCE Trust vs. Consolidated Edison | SCE Trust vs. Eversource Energy | SCE Trust vs. FirstEnergy |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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