Correlation Between System1 and Dow Jones
Can any of the company-specific risk be diversified away by investing in both System1 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 System1 and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between System1 and Dow Jones Industrial, you can compare the effects of market volatilities on System1 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 System1 with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of System1 and Dow Jones.
Diversification Opportunities for System1 and Dow Jones
Excellent diversification
The 3 months correlation between System1 and Dow is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding System1 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 System1 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 System1 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 System1 i.e., System1 and Dow Jones go up and down completely randomly.
Pair Corralation between System1 and Dow Jones
Considering the 90-day investment horizon System1 is expected to under-perform the Dow Jones. In addition to that, System1 is 5.02 times more volatile than Dow Jones Industrial. It trades about -0.03 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.15 per unit of volatility. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
System1 vs. Dow Jones Industrial
Performance |
| Timeline |
System1 and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
System1
Pair trading matchups for System1
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with System1 and Dow Jones
The main advantage of trading using opposite System1 and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if System1 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.| System1 vs. Network 1 Technologies | System1 vs. Maximus | System1 vs. First Advantage Corp | System1 vs. Civeo Corp |
| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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