Correlation Between Dow Jones and Wayfair
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Wayfair 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 Wayfair 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 Wayfair, you can compare the effects of market volatilities on Dow Jones and Wayfair 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 Wayfair. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Wayfair.
Diversification Opportunities for Dow Jones and Wayfair
Good diversification
The 3 months correlation between Dow and Wayfair is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Wayfair in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wayfair 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 Wayfair. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wayfair has no effect on the direction of Dow Jones i.e., Dow Jones and Wayfair go up and down completely randomly.
Pair Corralation between Dow Jones and Wayfair
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.27 times more return on investment than Wayfair. However, Dow Jones Industrial is 3.65 times less risky than Wayfair. It trades about 0.1 of its potential returns per unit of risk. Wayfair is currently generating about -0.12 per unit of risk. If you would invest 4,292,489 in Dow Jones Industrial on August 23, 2024 and sell it today you would earn a total of 94,546 from holding Dow Jones Industrial or generate 2.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Wayfair
Performance |
| Timeline |
Dow Jones and Wayfair Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Wayfair
Pair trading matchups for Wayfair
Pair Trading with Dow Jones and Wayfair
The main advantage of trading using opposite Dow Jones and Wayfair positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Wayfair 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 Wayfair will offset losses from the drop in Wayfair's long position.| Dow Jones vs. Barrick Gold Corp | Dow Jones vs. Jutal Offshore Oil | Dow Jones vs. Eastern Co | Dow Jones vs. Weyco 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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