Correlation Between PRE and Dow Jones
Can any of the company-specific risk be diversified away by investing in both PRE 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 PRE and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PRE and Dow Jones Industrial, you can compare the effects of market volatilities on PRE 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 PRE with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of PRE and Dow Jones.
Diversification Opportunities for PRE and Dow Jones
Average diversification
The 3 months correlation between PRE and Dow is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding PRE 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 PRE 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 PRE 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 PRE i.e., PRE and Dow Jones go up and down completely randomly.
Pair Corralation between PRE and Dow Jones
Assuming the 90 days trading horizon PRE is expected to generate 11.35 times more return on investment than Dow Jones. However, PRE is 11.35 times more volatile than Dow Jones Industrial. It trades about 0.21 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.22 per unit of risk. If you would invest 0.87 in PRE on August 27, 2024 and sell it today you would earn a total of 0.40 from holding PRE or generate 45.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
PRE vs. Dow Jones Industrial
Performance |
| Timeline |
PRE and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
PRE
Pair trading matchups for PRE
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with PRE and Dow Jones
The main advantage of trading using opposite PRE and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PRE 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 PRE 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. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
Other Complementary Tools
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Stocks Directory Find actively traded stocks across global markets | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume |