Correlation Between Dow Jones and Standard Lithium
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Standard Lithium 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 Standard Lithium 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 Standard Lithium, you can compare the effects of market volatilities on Dow Jones and Standard Lithium 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 Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Standard Lithium.
Diversification Opportunities for Dow Jones and Standard Lithium
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Standard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Dow Jones i.e., Dow Jones and Standard Lithium go up and down completely randomly.
Pair Corralation between Dow Jones and Standard Lithium
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.19 times more return on investment than Standard Lithium. However, Dow Jones Industrial is 5.39 times less risky than Standard Lithium. It trades about 0.15 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.19 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. Standard Lithium
Performance |
| Timeline |
Dow Jones and Standard Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Standard Lithium
Pair trading matchups for Standard Lithium
Pair Trading with Dow Jones and Standard Lithium
The main advantage of trading using opposite Dow Jones and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Standard Lithium 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 Standard Lithium will offset losses from the drop in Standard Lithium's long position.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| Standard Lithium vs. Lithium Americas Corp | Standard Lithium vs. Piedmont Lithium Ltd | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Teck Resources Ltd |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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