Correlation Between Dow Jones and Alkemy Capital

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

Diversification Opportunities for Dow Jones and Alkemy Capital

0.54

Correlation Coefficient

Dow Jones  Alkemy Capital

Very weak diversification

The 3 months correlation between Dow and Alkemy is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Alkemy Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alkemy Capital Inves 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 Alkemy Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alkemy Capital Inves has no effect on the direction of Dow Jones i.e., Dow Jones and Alkemy Capital go up and down completely randomly.

Pair Corralation between Dow Jones and Alkemy Capital

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Alkemy Capital. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 5.54 times less risky than Alkemy Capital. The index trades about -0.31 of its potential returns per unit of risk. The Alkemy Capital Investments is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  12,000  in Alkemy Capital Investments on October 3, 2024 and sell it today you would earn a total of  750.00  from holding Alkemy Capital Investments or generate 6.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.91%
Values	Daily Returns

Dow Jones Industrial  vs.  Alkemy Capital Investments

Pair Trading with Dow Jones and Alkemy Capital

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

The idea behind Dow Jones Industrial and Alkemy Capital Investments 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.

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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .