Correlation Between General Electric and Dow Jones
Can any of the company-specific risk be diversified away by investing in both General Electric 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 General Electric and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Dow Jones Industrial, you can compare the effects of market volatilities on General Electric 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 General Electric with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Dow Jones.
Diversification Opportunities for General Electric and Dow Jones
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between General and Dow is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Electric 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 General Electric 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 General Electric 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 General Electric i.e., General Electric and Dow Jones go up and down completely randomly.
Pair Corralation between General Electric and Dow Jones
Assuming the 90 days trading horizon General Electric is expected to generate 2.66 times more return on investment than Dow Jones. However, General Electric is 2.66 times more volatile than Dow Jones Industrial. It trades about 0.12 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.15 per unit of risk. If you would invest 90,399 in General Electric on November 3, 2024 and sell it today you would earn a total of 28,378 from holding General Electric or generate 31.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
General Electric vs. Dow Jones Industrial
Performance |
| Timeline |
General Electric and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
General Electric
Pair trading matchups for General Electric
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with General Electric and Dow Jones
The main advantage of trading using opposite General Electric and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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.| General Electric vs. Datadog, | General Electric vs. Burlington Stores, | General Electric vs. Molson Coors Beverage | General Electric vs. SK Telecom Co, |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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