Correlation Between Dow Jones and Aqua Power

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

Diversification Opportunities for Dow Jones and Aqua Power

0.69

Correlation Coefficient

Dow Jones  Aqua Power

Poor diversification

The 3 months correlation between Dow and Aqua is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Aqua Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aqua Power Systems 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 Aqua Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aqua Power Systems has no effect on the direction of Dow Jones i.e., Dow Jones and Aqua Power go up and down completely randomly.

Pair Corralation between Dow Jones and Aqua Power

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.07 times more return on investment than Aqua Power. However, Dow Jones Industrial is 13.94 times less risky than Aqua Power. It trades about 0.1 of its potential returns per unit of risk. Aqua Power Systems is currently generating about -0.04 per unit of risk. If you would invest  4,338,960  in Dow Jones Industrial on September 17, 2024 and sell it today you would earn a total of  43,846  from holding Dow Jones Industrial or generate 1.01% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Aqua Power Systems

Pair Trading with Dow Jones and Aqua Power

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

The idea behind Dow Jones Industrial and Aqua Power Systems 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.