Correlation Between KMD and Dow Jones
Can any of the company-specific risk be diversified away by investing in both KMD 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 KMD and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KMD and Dow Jones Industrial, you can compare the effects of market volatilities on KMD 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 KMD with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMD and Dow Jones.
Diversification Opportunities for KMD and Dow Jones
Poor diversification
The 3 months correlation between KMD and Dow is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding KMD 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 KMD 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 KMD 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 KMD i.e., KMD and Dow Jones go up and down completely randomly.
Pair Corralation between KMD and Dow Jones
Assuming the 90 days trading horizon KMD is expected to generate 9.07 times more return on investment than Dow Jones. However, KMD is 9.07 times more volatile than Dow Jones Industrial. It trades about 0.06 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.11 per unit of risk. If you would invest 25.00 in KMD on September 2, 2024 and sell it today you would earn a total of 9.00 from holding KMD or generate 36.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 45.7% |
| Values | Daily Returns |
KMD vs. Dow Jones Industrial
Performance |
| Timeline |
KMD and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
KMD
Pair trading matchups for KMD
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with KMD and Dow Jones
The main advantage of trading using opposite KMD and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMD 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.The idea behind KMD and Dow Jones Industrial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
Other Complementary Tools
| Funds Screener Find actively-traded funds from around the world traded on over 30 global exchanges | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Price Transformation Use Price Transformation models to analyze the depth of different equity instruments across global markets | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments |