Correlation Between Dow Jones and Transurban
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Transurban 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 Transurban 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 Transurban Group, you can compare the effects of market volatilities on Dow Jones and Transurban 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 Transurban. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Transurban.
Diversification Opportunities for Dow Jones and Transurban
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Transurban is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of Dow Jones i.e., Dow Jones and Transurban go up and down completely randomly.
Pair Corralation between Dow Jones and Transurban
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.06 times less return on investment than Transurban. But when comparing it to its historical volatility, Dow Jones Industrial is 3.87 times less risky than Transurban. It trades about 0.16 of its potential returns per unit of risk. Transurban Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 794.00 in Transurban Group on September 1, 2024 and sell it today you would earn a total of 92.00 from holding Transurban Group or generate 11.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Dow Jones Industrial vs. Transurban Group
Performance |
| Timeline |
Dow Jones and Transurban Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Transurban Group
Pair trading matchups for Transurban
Pair Trading with Dow Jones and Transurban
The main advantage of trading using opposite Dow Jones and Transurban positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Transurban 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 Transurban will offset losses from the drop in Transurban's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Transurban vs. BCE Inc | Transurban vs. Digi International | Transurban vs. Sphere Entertainment Co | Transurban vs. Anterix |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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