Correlation Between South American and Dow Jones
Can any of the company-specific risk be diversified away by investing in both South American 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 South American and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between South American Gold and Dow Jones Industrial, you can compare the effects of market volatilities on South American 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 South American with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of South American and Dow Jones.
Diversification Opportunities for South American and Dow Jones
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between South and Dow is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding South American Gold 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 South American 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 South American Gold 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 South American i.e., South American and Dow Jones go up and down completely randomly.
Pair Corralation between South American and Dow Jones
Given the investment horizon of 90 days South American Gold is expected to generate 182.1 times more return on investment than Dow Jones. However, South American is 182.1 times more volatile than Dow Jones Industrial. It trades about 0.11 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.13 per unit of risk. If you would invest 0.01 in South American Gold on September 3, 2024 and sell it today you would lose (0.01) from holding South American Gold or give up 100.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
South American Gold vs. Dow Jones Industrial
Performance |
| Timeline |
South American and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
South American Gold
Pair trading matchups for South American
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with South American and Dow Jones
The main advantage of trading using opposite South American and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if South American 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.| South American vs. Pacira BioSciences, | South American vs. Collegium Pharmaceutical | South American vs. Prestige Brand Holdings | South American vs. Phibro Animal Health |
| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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