Correlation Between Financial Institutions and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Financial Institutions 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 Financial Institutions and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Financial Institutions and Dow Jones Industrial, you can compare the effects of market volatilities on Financial Institutions 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 Financial Institutions with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financial Institutions and Dow Jones.
Diversification Opportunities for Financial Institutions and Dow Jones
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Financial and Dow is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Financial Institutions 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 Financial Institutions 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 Financial Institutions 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 Financial Institutions i.e., Financial Institutions and Dow Jones go up and down completely randomly.
Pair Corralation between Financial Institutions and Dow Jones
Given the investment horizon of 90 days Financial Institutions is expected to under-perform the Dow Jones. In addition to that, Financial Institutions is 2.08 times more volatile than Dow Jones Industrial. It trades about -0.04 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.29 per unit of volatility. If you would invest 4,270,656 in Dow Jones Industrial on November 7, 2024 and sell it today you would earn a total of 184,948 from holding Dow Jones Industrial or generate 4.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
Financial Institutions vs. Dow Jones Industrial
Performance |
| Timeline |
Financial Institutions and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Financial Institutions
Pair trading matchups for Financial Institutions
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Financial Institutions and Dow Jones
The main advantage of trading using opposite Financial Institutions and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Financial Institutions 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.| Financial Institutions vs. First Community | Financial Institutions vs. Community West Bancshares | Financial Institutions vs. First Financial Northwest | Financial Institutions vs. First Northwest Bancorp |
| Dow Jones vs. Viemed Healthcare | Dow Jones vs. Alphatec Holdings | Dow Jones vs. Tandem Diabetes Care | Dow Jones vs. Alvotech |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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