Correlation Between Dow Jones and Chevron Corp

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

Diversification Opportunities for Dow Jones and Chevron Corp

-0.07

Correlation Coefficient

Dow Jones  Chevron Corp

Good diversification

The 3 months correlation between Dow and Chevron is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Chevron Corp CEDEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp CEDEAR 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp CEDEAR has no effect on the direction of Dow Jones i.e., Dow Jones and Chevron Corp go up and down completely randomly.

Pair Corralation between Dow Jones and Chevron Corp

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.49 times more return on investment than Chevron Corp. However, Dow Jones Industrial is 2.06 times less risky than Chevron Corp. It trades about 0.12 of its potential returns per unit of risk. Chevron Corp CEDEAR is currently generating about -0.06 per unit of risk. If you would invest  4,162,208  in Dow Jones Industrial on September 14, 2024 and sell it today you would earn a total of  229,204  from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Chevron Corp CEDEAR

Pair Trading with Dow Jones and Chevron Corp

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

The idea behind Dow Jones Industrial and Chevron Corp CEDEAR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.