Correlation Between Dow Jones and DS Smith
Can any of the company-specific risk be diversified away by investing in both Dow Jones and DS Smith 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 DS Smith 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 DS Smith PLC, you can compare the effects of market volatilities on Dow Jones and DS Smith 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 DS Smith. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and DS Smith.
Diversification Opportunities for Dow Jones and DS Smith
Poor diversification
The 3 months correlation between Dow and SMDS is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and DS Smith PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DS Smith PLC 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 DS Smith. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DS Smith PLC has no effect on the direction of Dow Jones i.e., Dow Jones and DS Smith go up and down completely randomly.
Pair Corralation between Dow Jones and DS Smith
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.53 times less return on investment than DS Smith. But when comparing it to its historical volatility, Dow Jones Industrial is 2.62 times less risky than DS Smith. It trades about 0.08 of its potential returns per unit of risk. DS Smith PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 29,487 in DS Smith PLC on August 30, 2024 and sell it today you would earn a total of 28,713 from holding DS Smith PLC or generate 97.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Dow Jones Industrial vs. DS Smith PLC
Performance |
| Timeline |
Dow Jones and DS Smith Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
DS Smith PLC
Pair trading matchups for DS Smith
Pair Trading with Dow Jones and DS Smith
The main advantage of trading using opposite Dow Jones and DS Smith positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, DS Smith 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 DS Smith will offset losses from the drop in DS Smith's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| DS Smith vs. Norwegian Air Shuttle | DS Smith vs. Impax Environmental Markets | DS Smith vs. Aeorema Communications Plc | DS Smith vs. Cellnex Telecom SA |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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