Correlation Between Energy Leaders and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Energy Leaders 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 Energy Leaders and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Leaders Plus and Dow Jones Industrial, you can compare the effects of market volatilities on Energy Leaders 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 Energy Leaders with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Leaders and Dow Jones.
Diversification Opportunities for Energy Leaders and Dow Jones
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Energy and Dow is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Energy Leaders Plus 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 Energy Leaders 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 Energy Leaders Plus 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 Energy Leaders i.e., Energy Leaders and Dow Jones go up and down completely randomly.
Pair Corralation between Energy Leaders and Dow Jones
Assuming the 90 days trading horizon Energy Leaders is expected to generate 2.0 times less return on investment than Dow Jones. In addition to that, Energy Leaders is 1.54 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 0.12 per unit of volatility. If you would invest 3,383,361 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,107,704 from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.47% |
| Values | Daily Returns |
Energy Leaders Plus vs. Dow Jones Industrial
Performance |
| Timeline |
Energy Leaders and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Energy Leaders Plus
Pair trading matchups for Energy Leaders
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Energy Leaders and Dow Jones
The main advantage of trading using opposite Energy Leaders and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Leaders 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.| Energy Leaders vs. Harvest Brand Leaders | Energy Leaders vs. Harvest Equal Weight | Energy Leaders vs. First Asset Energy | Energy Leaders vs. Harvest Healthcare Leaders |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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