Correlation Between World Oil and Dow Jones
Can any of the company-specific risk be diversified away by investing in both World Oil 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 World Oil and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between World Oil Group and Dow Jones Industrial, you can compare the effects of market volatilities on World Oil 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 World Oil with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of World Oil and Dow Jones.
Diversification Opportunities for World Oil and Dow Jones
Average diversification
The 3 months correlation between World and Dow is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding World Oil Group 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 World Oil 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 World Oil Group 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 World Oil i.e., World Oil and Dow Jones go up and down completely randomly.
Pair Corralation between World Oil and Dow Jones
Given the investment horizon of 90 days World Oil Group is expected to generate 10.64 times more return on investment than Dow Jones. However, World Oil is 10.64 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 0.26 per unit of risk. If you would invest 1.95 in World Oil Group on August 29, 2024 and sell it today you would earn a total of 0.04 from holding World Oil Group or generate 2.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
World Oil Group vs. Dow Jones Industrial
Performance |
| Timeline |
World Oil and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
World Oil Group
Pair trading matchups for World Oil
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with World Oil and Dow Jones
The main advantage of trading using opposite World Oil and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if World Oil 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.| World Oil vs. Honeywell International | World Oil vs. 3M Company | World Oil vs. Mitsubishi Corp | World Oil vs. Hitachi |
| 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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