Correlation Between Dow Jones and Summit Materials
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Summit Materials 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 Summit Materials 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 Summit Materials, you can compare the effects of market volatilities on Dow Jones and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Summit Materials.
Diversification Opportunities for Dow Jones and Summit Materials
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Summit is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Dow Jones i.e., Dow Jones and Summit Materials go up and down completely randomly.
Pair Corralation between Dow Jones and Summit Materials
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.9 times less return on investment than Summit Materials. But when comparing it to its historical volatility, Dow Jones Industrial is 2.42 times less risky than Summit Materials. It trades about 0.27 of its potential returns per unit of risk. Summit Materials is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 4,601 in Summit Materials on August 30, 2024 and sell it today you would earn a total of 508.00 from holding Summit Materials or generate 11.04% 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. Summit Materials
Performance |
| Timeline |
Dow Jones and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Summit Materials
Pair trading matchups for Summit Materials
Pair Trading with Dow Jones and Summit Materials
The main advantage of trading using opposite Dow Jones and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Summit Materials vs. Martin Marietta Materials | Summit Materials vs. Vulcan Materials | Summit Materials vs. United States Lime | Summit Materials vs. James Hardie Industries |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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