Correlation Between Dow Jones and LG Household
Can any of the company-specific risk be diversified away by investing in both Dow Jones and LG Household 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 Dow Jones and LG Household into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and LG Household Healthcare, you can compare the effects of market volatilities on Dow Jones and LG Household 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 Dow Jones with a short position of LG Household. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and LG Household.
Diversification Opportunities for Dow Jones and LG Household
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and 051905 is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and LG Household Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Household Healthcare and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with LG Household. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Household Healthcare has no effect on the direction of Dow Jones i.e., Dow Jones and LG Household go up and down completely randomly.
Pair Corralation between Dow Jones and LG Household
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.71 times more return on investment than LG Household. However, Dow Jones Industrial is 1.4 times less risky than LG Household. It trades about -0.04 of its potential returns per unit of risk. LG Household Healthcare is currently generating about -0.04 per unit of risk. If you would invest 4,254,422 in Dow Jones Industrial on December 31, 2024 and sell it today you would lose (96,032) from holding Dow Jones Industrial or give up 2.26% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 95.08% |
Values | Daily Returns |
Dow Jones Industrial vs. LG Household Healthcare
Performance |
Timeline |
Dow Jones and LG Household Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
LG Household Healthcare
Pair trading matchups for LG Household
Pair Trading with Dow Jones and LG Household
The main advantage of trading using opposite Dow Jones and LG Household positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, LG Household 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 LG Household will offset losses from the drop in LG Household's long position.Dow Jones vs. Delek Logistics Partners | Dow Jones vs. Mills Music Trust | Dow Jones vs. Spyre Therapeutics | Dow Jones vs. Toro |
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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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