Correlation Between East Africa and Dow Jones
Can any of the company-specific risk be diversified away by investing in both East Africa and Dow Jones 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 East Africa and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between East Africa Metals and Dow Jones Industrial, you can compare the effects of market volatilities on East Africa and Dow Jones 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 East Africa with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and Dow Jones.
Diversification Opportunities for East Africa and Dow Jones
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between East and Dow is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and East Africa 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 East Africa Metals are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of East Africa i.e., East Africa and Dow Jones go up and down completely randomly.
Pair Corralation between East Africa and Dow Jones
Assuming the 90 days horizon East Africa Metals is expected to generate 23.7 times more return on investment than Dow Jones. However, East Africa is 23.7 times more volatile than Dow Jones Industrial. It trades about 0.07 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.13 per unit of risk. If you would invest 6.26 in East Africa Metals on August 24, 2024 and sell it today you would earn a total of 4.74 from holding East Africa Metals or generate 75.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
East Africa Metals vs. Dow Jones Industrial
Performance |
| Timeline |
East Africa and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
East Africa Metals
Pair trading matchups for East Africa
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with East Africa and Dow Jones
The main advantage of trading using opposite East Africa and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East Africa position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| East Africa vs. Syrah Resources Limited | East Africa vs. Nouveau Monde Graphite | East Africa vs. Small Cap Core | East Africa vs. Morningstar Unconstrained Allocation |
| 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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