Correlation Between Dow Jones and Source Energy
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Source Energy 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 Source Energy 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 Source Energy Services, you can compare the effects of market volatilities on Dow Jones and Source Energy 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 Source Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Source Energy.
Diversification Opportunities for Dow Jones and Source Energy
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Source is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Source Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source Energy Services 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 Source Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source Energy Services has no effect on the direction of Dow Jones i.e., Dow Jones and Source Energy go up and down completely randomly.
Pair Corralation between Dow Jones and Source Energy
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.57 times less return on investment than Source Energy. But when comparing it to its historical volatility, Dow Jones Industrial is 4.59 times less risky than Source Energy. It trades about 0.19 of its potential returns per unit of risk. Source Energy Services is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,246 in Source Energy Services on August 31, 2024 and sell it today you would earn a total of 404.00 from holding Source Energy Services or generate 32.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
Dow Jones Industrial vs. Source Energy Services
Performance |
| Timeline |
Dow Jones and Source Energy Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Source Energy Services
Pair trading matchups for Source Energy
Pair Trading with Dow Jones and Source Energy
The main advantage of trading using opposite Dow Jones and Source Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Source Energy 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 Source Energy will offset losses from the drop in Source Energy's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Source Energy vs. STEP Energy Services | Source Energy vs. Calfrac Well Services | Source Energy vs. InPlay Oil Corp | Source Energy vs. Yangarra Resources |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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