Correlation Between African Rainbow and Dow Jones
Can any of the company-specific risk be diversified away by investing in both African Rainbow 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 African Rainbow and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between African Rainbow Capital and Dow Jones Industrial, you can compare the effects of market volatilities on African Rainbow 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 African Rainbow with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of African Rainbow and Dow Jones.
Diversification Opportunities for African Rainbow and Dow Jones
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between African and Dow is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding African Rainbow Capital 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 African Rainbow 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 African Rainbow Capital 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 African Rainbow i.e., African Rainbow and Dow Jones go up and down completely randomly.
Pair Corralation between African Rainbow and Dow Jones
Assuming the 90 days trading horizon African Rainbow Capital is expected to generate 3.2 times more return on investment than Dow Jones. However, African Rainbow is 3.2 times more volatile than Dow Jones Industrial. It trades about 0.15 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.09 per unit of risk. If you would invest 54,000 in African Rainbow Capital on September 24, 2024 and sell it today you would earn a total of 41,000 from holding African Rainbow Capital or generate 75.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 99.4% |
Values | Daily Returns |
African Rainbow Capital vs. Dow Jones Industrial
Performance |
Timeline |
African Rainbow and Dow Jones Volatility Contrast
Predicted Return Density |
Returns |
African Rainbow Capital
Pair trading matchups for African Rainbow
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with African Rainbow and Dow Jones
The main advantage of trading using opposite African Rainbow and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if African Rainbow 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.African Rainbow vs. Remgro | African Rainbow vs. Reinet Investments SCA | African Rainbow vs. Brait SE | African Rainbow vs. Zeder Investments |
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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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