Correlation Between Dow Jones and Bluebird Bio

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

Diversification Opportunities for Dow Jones and Bluebird Bio

-0.14

Correlation Coefficient

Dow Jones  Bluebird Bio

Good diversification

The 3 months correlation between Dow and Bluebird is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Bluebird bio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluebird 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 Bluebird Bio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bluebird bio has no effect on the direction of Dow Jones i.e., Dow Jones and Bluebird Bio go up and down completely randomly.

Pair Corralation between Dow Jones and Bluebird Bio

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Bluebird Bio. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 21.98 times less risky than Bluebird Bio. The index trades about -0.07 of its potential returns per unit of risk. The Bluebird bio is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  717.00  in Bluebird bio on December 3, 2024 and sell it today you would lose (329.00) from holding Bluebird bio or give up 45.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Dow Jones Industrial  vs.  Bluebird bio

Pair Trading with Dow Jones and Bluebird Bio

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

The idea behind Dow Jones Industrial and Bluebird 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.