Correlation Between Dow Jones and Big Yellow

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

Diversification Opportunities for Dow Jones and Big Yellow

-0.63

Correlation Coefficient

Dow Jones  Big Yellow

Excellent diversification

The 3 months correlation between Dow and Big is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Big Yellow Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Yellow Group 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 Big Yellow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Yellow Group has no effect on the direction of Dow Jones i.e., Dow Jones and Big Yellow go up and down completely randomly.

Pair Corralation between Dow Jones and Big Yellow

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.56 times more return on investment than Big Yellow. However, Dow Jones Industrial is 1.79 times less risky than Big Yellow. It trades about 0.1 of its potential returns per unit of risk. Big Yellow Group is currently generating about -0.04 per unit of risk. If you would invest  3,541,698  in Dow Jones Industrial on September 23, 2024 and sell it today you would earn a total of  742,328  from holding Dow Jones Industrial or generate 20.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.54%
Values	Daily Returns

Dow Jones Industrial  vs.  Big Yellow Group

Pair Trading with Dow Jones and Big Yellow

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

The idea behind Dow Jones Industrial and Big Yellow Group 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.