Correlation Between Dow Jones and Brompton Enhanced

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

Diversification Opportunities for Dow Jones and Brompton Enhanced

0.84

Correlation Coefficient

Dow Jones  Brompton Enhanced

Very poor diversification

The 3 months correlation between Dow and Brompton is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Brompton Enhanced Multi Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brompton Enhanced Multi 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 Brompton Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brompton Enhanced Multi has no effect on the direction of Dow Jones i.e., Dow Jones and Brompton Enhanced go up and down completely randomly.

Pair Corralation between Dow Jones and Brompton Enhanced

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.09 times less return on investment than Brompton Enhanced. In addition to that, Dow Jones is 1.02 times more volatile than Brompton Enhanced Multi Asset. It trades about 0.07 of its total potential returns per unit of risk. Brompton Enhanced Multi Asset is currently generating about 0.08 per unit of volatility. If you would invest  1,070  in Brompton Enhanced Multi Asset on October 7, 2024 and sell it today you would earn a total of  307.00  from holding Brompton Enhanced Multi Asset or generate 28.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Dow Jones Industrial  vs.  Brompton Enhanced Multi Asset

Pair Trading with Dow Jones and Brompton Enhanced

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

The idea behind Dow Jones Industrial and Brompton Enhanced Multi Asset 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.