Correlation Between Dow Jones and Better World

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

Diversification Opportunities for Dow Jones and Better World

0.06

Correlation Coefficient

Dow Jones  Better World

Significant diversification

The 3 months correlation between Dow and Better is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Better World Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better World Acquisition 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 Better World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better World Acquisition has no effect on the direction of Dow Jones i.e., Dow Jones and Better World go up and down completely randomly.

Pair Corralation between Dow Jones and Better World

If you would invest  1,002  in Better World Acquisition on September 28, 2024 and sell it today you would earn a total of  0.00  from holding Better World Acquisition or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	4.76%
Values	Daily Returns

Dow Jones Industrial  vs.  Better World Acquisition

Pair Trading with Dow Jones and Better World

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

The idea behind Dow Jones Industrial and Better World Acquisition 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.