Correlation Between Power Financial and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Power Financial 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 Power Financial and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Power Financial Corp and Dow Jones Industrial, you can compare the effects of market volatilities on Power Financial 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 Power Financial with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Financial and Dow Jones.
Diversification Opportunities for Power Financial and Dow Jones
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Power and Dow is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Power Financial Corp 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 Power Financial 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 Power Financial Corp 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 Power Financial i.e., Power Financial and Dow Jones go up and down completely randomly.
Pair Corralation between Power Financial and Dow Jones
Assuming the 90 days trading horizon Power Financial Corp is expected to generate 3.12 times more return on investment than Dow Jones. However, Power Financial is 3.12 times more volatile than Dow Jones Industrial. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.01 per unit of risk. If you would invest 1,620 in Power Financial Corp on September 14, 2024 and sell it today you would earn a total of 48.00 from holding Power Financial Corp or generate 2.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Power Financial Corp vs. Dow Jones Industrial
Performance |
| Timeline |
Power Financial and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Power Financial Corp
Pair trading matchups for Power Financial
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Power Financial and Dow Jones
The main advantage of trading using opposite Power Financial and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Financial 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.| Power Financial vs. Reliq Health Technologies | Power Financial vs. Mako Mining Corp | Power Financial vs. NeuPath Health | Power Financial vs. Forsys Metals Corp |
| Dow Jones vs. Hurco Companies | Dow Jones vs. Tyson Foods | Dow Jones vs. MYR Group | Dow Jones vs. Cannae Holdings |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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