Correlation Between Dow Jones and Universal Security
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Universal Security 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 Universal Security 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 Universal Security Instruments, you can compare the effects of market volatilities on Dow Jones and Universal Security 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 Universal Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Universal Security.
Diversification Opportunities for Dow Jones and Universal Security
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Universal is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Universal Security Instruments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Security 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 Universal Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Security has no effect on the direction of Dow Jones i.e., Dow Jones and Universal Security go up and down completely randomly.
Pair Corralation between Dow Jones and Universal Security
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.36 times less return on investment than Universal Security. But when comparing it to its historical volatility, Dow Jones Industrial is 7.46 times less risky than Universal Security. It trades about 0.16 of its potential returns per unit of risk. Universal Security Instruments is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 156.00 in Universal Security Instruments on September 2, 2024 and sell it today you would earn a total of 63.00 from holding Universal Security Instruments or generate 40.38% 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. Universal Security Instruments
Performance |
| Timeline |
Dow Jones and Universal Security Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Universal Security Instruments
Pair trading matchups for Universal Security
Pair Trading with Dow Jones and Universal Security
The main advantage of trading using opposite Dow Jones and Universal Security positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Universal Security 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 Universal Security will offset losses from the drop in Universal Security's long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| Universal Security vs. Brinks Company | Universal Security vs. MSA Safety | Universal Security vs. Resideo Technologies | Universal Security vs. Mistras Group |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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