Correlation Between Dow Jones and LIFENET INSURANCE

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

Diversification Opportunities for Dow Jones and LIFENET INSURANCE

0.63

Correlation Coefficient

Dow Jones  LIFENET INSURANCE

Poor diversification

The 3 months correlation between Dow and LIFENET is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and LIFENET INSURANCE CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LIFENET INSURANCE 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 LIFENET INSURANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LIFENET INSURANCE has no effect on the direction of Dow Jones i.e., Dow Jones and LIFENET INSURANCE go up and down completely randomly.

Pair Corralation between Dow Jones and LIFENET INSURANCE

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.58 times less return on investment than LIFENET INSURANCE. But when comparing it to its historical volatility, Dow Jones Industrial is 3.21 times less risky than LIFENET INSURANCE. It trades about 0.19 of its potential returns per unit of risk. LIFENET INSURANCE CO is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,040  in LIFENET INSURANCE CO on August 31, 2024 and sell it today you would earn a total of  140.00  from holding LIFENET INSURANCE CO or generate 13.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Dow Jones Industrial  vs.  LIFENET INSURANCE CO

Pair Trading with Dow Jones and LIFENET INSURANCE

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

The idea behind Dow Jones Industrial and LIFENET INSURANCE CO 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.