Correlation Between Dow Jones and WOOJUNG BIO

Can any of the company-specific risk be diversified away by investing in both Dow Jones and WOOJUNG BIO 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 WOOJUNG BIO 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 WOOJUNG BIO, you can compare the effects of market volatilities on Dow Jones and WOOJUNG BIO 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 WOOJUNG BIO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and WOOJUNG BIO.

Diversification Opportunities for Dow Jones and WOOJUNG BIO

-0.72

Correlation Coefficient

Dow Jones  WOOJUNG BIO

Pay attention - limited upside

The 3 months correlation between Dow and WOOJUNG is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and WOOJUNG BIO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WOOJUNG BIO 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 WOOJUNG BIO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WOOJUNG BIO has no effect on the direction of Dow Jones i.e., Dow Jones and WOOJUNG BIO go up and down completely randomly.

Pair Corralation between Dow Jones and WOOJUNG BIO

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the WOOJUNG BIO. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 4.56 times less risky than WOOJUNG BIO. The index trades about -0.28 of its potential returns per unit of risk. The WOOJUNG BIO is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  176,700  in WOOJUNG BIO on September 24, 2024 and sell it today you would lose (6,900) from holding WOOJUNG BIO or give up 3.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Dow Jones Industrial  vs.  WOOJUNG BIO

Pair Trading with Dow Jones and WOOJUNG BIO

The main advantage of trading using opposite Dow Jones and WOOJUNG BIO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, WOOJUNG BIO 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 WOOJUNG BIO will offset losses from the drop in WOOJUNG BIO's long position.

The idea behind Dow Jones Industrial and WOOJUNG BIO pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.