Correlation Between US Energy and Dow Jones
Can any of the company-specific risk be diversified away by investing in both US Energy 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 Energy 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 Energy Corp and Dow Jones Industrial, you can compare the effects of market volatilities on US Energy 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 Energy with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Energy and Dow Jones.
Diversification Opportunities for US Energy and Dow Jones
Very poor diversification
The 3 months correlation between USEG and Dow is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding US Energy 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 US Energy 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 Energy 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 US Energy i.e., US Energy and Dow Jones go up and down completely randomly.
Pair Corralation between US Energy and Dow Jones
Given the investment horizon of 90 days US Energy is expected to generate 14.44 times less return on investment than Dow Jones. In addition to that, US Energy is 4.75 times more volatile than Dow Jones Industrial. It trades about 0.0 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of volatility. If you would invest 3,394,710 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 1,034,941 from holding Dow Jones Industrial or generate 30.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
US Energy Corp vs. Dow Jones Industrial
Performance |
| Timeline |
US Energy and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
US Energy Corp
Pair trading matchups for US Energy
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with US Energy and Dow Jones
The main advantage of trading using opposite US Energy and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if US Energy 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 Energy vs. PEDEVCO Corp | US Energy vs. Houston American Energy | US Energy vs. PHX Minerals | US Energy vs. Trio Petroleum 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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