Correlation Between Dow Jones and FedEx Corp

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

Diversification Opportunities for Dow Jones and FedEx Corp

0.66

Correlation Coefficient

Dow Jones  FedEx Corp

Poor diversification

The 3 months correlation between Dow and FedEx is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and FedEx Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FedEx Corp 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 FedEx Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FedEx Corp has no effect on the direction of Dow Jones i.e., Dow Jones and FedEx Corp go up and down completely randomly.

Pair Corralation between Dow Jones and FedEx Corp

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the FedEx Corp. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 4.33 times less risky than FedEx Corp. The index trades about -0.27 of its potential returns per unit of risk. The FedEx Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  26,530  in FedEx Corp on October 9, 2024 and sell it today you would lose (20.00) from holding FedEx Corp or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.95%
Values	Daily Returns

Dow Jones Industrial  vs.  FedEx Corp

Pair Trading with Dow Jones and FedEx Corp

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

The idea behind Dow Jones Industrial and FedEx Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.