Correlation Between East West and Dow Jones
Can any of the company-specific risk be diversified away by investing in both East West 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 West 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 West Banking and Dow Jones Industrial, you can compare the effects of market volatilities on East West 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 West with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of East West and Dow Jones.
Diversification Opportunities for East West and Dow Jones
Poor diversification
The 3 months correlation between East and Dow is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding East West Banking 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 West 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 West Banking 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 West i.e., East West and Dow Jones go up and down completely randomly.
Pair Corralation between East West and Dow Jones
Assuming the 90 days trading horizon East West is expected to generate 1.96 times less return on investment than Dow Jones. In addition to that, East West is 1.54 times more volatile than Dow Jones Industrial. It trades about 0.05 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.14 per unit of volatility. If you would invest 3,885,286 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 544,365 from holding Dow Jones Industrial or generate 14.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.43% |
| Values | Daily Returns |
East West Banking vs. Dow Jones Industrial
Performance |
| Timeline |
East West and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
East West Banking
Pair trading matchups for East West
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with East West and Dow Jones
The main advantage of trading using opposite East West and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if East West 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 West vs. Robinsons Retail Holdings | East West vs. Converge Information Communications | East West vs. Atlas Consolidated Mining | East West vs. Lepanto Consolidated Mining |
| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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