Correlation Between Dow Jones and Companhia Tecidos

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

Diversification Opportunities for Dow Jones and Companhia Tecidos

-0.61

Correlation Coefficient

Dow Jones  Companhia Tecidos

Excellent diversification

The 3 months correlation between Dow and Companhia is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Companhia Tecidos Santanense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Tecidos 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 Companhia Tecidos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Tecidos has no effect on the direction of Dow Jones i.e., Dow Jones and Companhia Tecidos go up and down completely randomly.

Pair Corralation between Dow Jones and Companhia Tecidos

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.34 times more return on investment than Companhia Tecidos. However, Dow Jones Industrial is 2.98 times less risky than Companhia Tecidos. It trades about 0.06 of its potential returns per unit of risk. Companhia Tecidos Santanense is currently generating about -0.38 per unit of risk. If you would invest  4,217,511  in Dow Jones Industrial on September 26, 2024 and sell it today you would earn a total of  112,192  from holding Dow Jones Industrial or generate 2.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Dow Jones Industrial  vs.  Companhia Tecidos Santanense

Pair Trading with Dow Jones and Companhia Tecidos

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

The idea behind Dow Jones Industrial and Companhia Tecidos Santanense 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.