Correlation Between Dow Jones and Guaranty Trust

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

Diversification Opportunities for Dow Jones and Guaranty Trust

0.2

Correlation Coefficient

Dow Jones  Guaranty Trust

Modest diversification

The 3 months correlation between Dow and Guaranty is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Guaranty Trust Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guaranty Trust Holding 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 Guaranty Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guaranty Trust Holding has no effect on the direction of Dow Jones i.e., Dow Jones and Guaranty Trust go up and down completely randomly.

Pair Corralation between Dow Jones and Guaranty Trust

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Guaranty Trust. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.81 times less risky than Guaranty Trust. The index trades about -0.25 of its potential returns per unit of risk. The Guaranty Trust Holding is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  185.00  in Guaranty Trust Holding on October 15, 2024 and sell it today you would earn a total of  10.00  from holding Guaranty Trust Holding or generate 5.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Dow Jones Industrial  vs.  Guaranty Trust Holding

Pair Trading with Dow Jones and Guaranty Trust

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

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