Correlation Between SFL and Dow Jones
Can any of the company-specific risk be diversified away by investing in both SFL 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 SFL and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SFL Corporation and Dow Jones Hong, you can compare the effects of market volatilities on SFL 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 SFL with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of SFL and Dow Jones.
Diversification Opportunities for SFL and Dow Jones
Very weak diversification
The 3 months correlation between SFL and Dow is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding SFL Corp. and Dow Jones Hong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Hong and SFL 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 SFL Corporation 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 Hong has no effect on the direction of SFL i.e., SFL and Dow Jones go up and down completely randomly.
Pair Corralation between SFL and Dow Jones
Considering the 90-day investment horizon SFL Corporation is expected to generate 1.5 times more return on investment than Dow Jones. However, SFL is 1.5 times more volatile than Dow Jones Hong. It trades about 0.13 of its potential returns per unit of risk. Dow Jones Hong is currently generating about -0.04 per unit of risk. If you would invest 1,017 in SFL Corporation on September 12, 2024 and sell it today you would earn a total of 41.00 from holding SFL Corporation or generate 4.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
SFL Corp. vs. Dow Jones Hong
Performance |
| Timeline |
SFL and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
SFL Corporation
Pair trading matchups for SFL
Dow Jones Hong
Pair trading matchups for Dow Jones
Pair Trading with SFL and Dow Jones
The main advantage of trading using opposite SFL and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SFL 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 SFL Corporation and Dow Jones Hong 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. Summit Environmental | Dow Jones vs. Lincoln Electric Holdings | Dow Jones vs. Steven Madden | Dow Jones vs. Timken Company |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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