Correlation Between Medical Marijuana and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Medical Marijuana 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 Medical Marijuana and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Medical Marijuana I and Dow Jones Industrial, you can compare the effects of market volatilities on Medical Marijuana 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 Medical Marijuana with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Medical Marijuana and Dow Jones.
Diversification Opportunities for Medical Marijuana and Dow Jones
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Medical and Dow is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Medical Marijuana I 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 Medical Marijuana 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 Medical Marijuana I 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 Medical Marijuana i.e., Medical Marijuana and Dow Jones go up and down completely randomly.
Pair Corralation between Medical Marijuana and Dow Jones
Given the investment horizon of 90 days Medical Marijuana I is expected to under-perform the Dow Jones. In addition to that, Medical Marijuana is 14.88 times more volatile than Dow Jones Industrial. It trades about -0.02 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 3,464,197 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,008,009 from holding Dow Jones Industrial or generate 29.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.68% |
| Values | Daily Returns |
Medical Marijuana I vs. Dow Jones Industrial
Performance |
| Timeline |
Medical Marijuana and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Medical Marijuana I
Pair trading matchups for Medical Marijuana
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Medical Marijuana and Dow Jones
The main advantage of trading using opposite Medical Marijuana and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Medical Marijuana 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.| Medical Marijuana vs. American Green | Medical Marijuana vs. North American Cannabis | Medical Marijuana vs. Marijuana | Medical Marijuana vs. Rimrock Gold Corp |
| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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