Correlation Between US Bancorp and Dow Jones
Can any of the company-specific risk be diversified away by investing in both US Bancorp 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 US Bancorp and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between US Bancorp PERP and Dow Jones Industrial, you can compare the effects of market volatilities on US Bancorp 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 US Bancorp with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Bancorp and Dow Jones.
Diversification Opportunities for US Bancorp and Dow Jones
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between USB-PA and Dow is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding US Bancorp PERP 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 US Bancorp 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 US Bancorp PERP 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 US Bancorp i.e., US Bancorp and Dow Jones go up and down completely randomly.
Pair Corralation between US Bancorp and Dow Jones
Assuming the 90 days trading horizon US Bancorp PERP is expected to generate 1.32 times more return on investment than Dow Jones. However, US Bancorp is 1.32 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 0.12 per unit of risk. If you would invest 63,331 in US Bancorp PERP on August 31, 2024 and sell it today you would earn a total of 25,439 from holding US Bancorp PERP or generate 40.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Bancorp PERP vs. Dow Jones Industrial
Performance |
| Timeline |
US Bancorp and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
US Bancorp PERP
Pair trading matchups for US Bancorp
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with US Bancorp and Dow Jones
The main advantage of trading using opposite US Bancorp and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Bancorp 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.| US Bancorp vs. KeyCorp | US Bancorp vs. Regions Financial | US Bancorp vs. US Bancorp | US Bancorp vs. KeyCorp |
| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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