Correlation Between Dow and E I
Can any of the company-specific risk be diversified away by investing in both Dow and E I 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 and E I into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and E I du, you can compare the effects of market volatilities on Dow and E I 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 with a short position of E I. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and E I.
Diversification Opportunities for Dow and E I
Poor diversification
The 3 months correlation between Dow and CTA-PB is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and E I du in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E I du and Dow 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 Inc are associated (or correlated) with E I. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E I du has no effect on the direction of Dow i.e., Dow and E I go up and down completely randomly.
Pair Corralation between Dow and E I
Considering the 90-day investment horizon Dow is expected to generate 6.0 times less return on investment than E I. But when comparing it to its historical volatility, Dow Inc is 1.69 times less risky than E I. It trades about 0.0 of its potential returns per unit of risk. E I du is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 7,429 in E I du on August 30, 2024 and sell it today you would lose (127.00) from holding E I du or give up 1.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. E I du
Performance |
| Timeline |
| Dow Inc |
| E I du |
Dow and E I Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and E I
The main advantage of trading using opposite Dow and E I positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, E I 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 E I will offset losses from the drop in E I's long position.The idea behind Dow Inc and E I du pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
Other Complementary Tools
| Portfolio Manager State of the art Portfolio Manager to monitor and improve performance of your invested capital | |
| Stocks Directory Find actively traded stocks across global markets | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |