Correlation Between Dow Jones and LT
Can any of the company-specific risk be diversified away by investing in both Dow Jones and LT 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 LT 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 LT Group, you can compare the effects of market volatilities on Dow Jones and LT 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 LT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and LT.
Diversification Opportunities for Dow Jones and LT
Very weak diversification
The 3 months correlation between Dow and LT is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and LT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT 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 LT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Group has no effect on the direction of Dow Jones i.e., Dow Jones and LT go up and down completely randomly.
Pair Corralation between Dow Jones and LT
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the LT. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.51 times less risky than LT. The index trades about -0.04 of its potential returns per unit of risk. The LT Group is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest 1,012 in LT Group on December 2, 2024 and sell it today you would earn a total of 150.00 from holding LT Group or generate 14.82% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 96.77% |
Values | Daily Returns |
Dow Jones Industrial vs. LT Group
Performance |
Timeline |
Dow Jones and LT Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
LT Group
Pair trading matchups for LT
Pair Trading with Dow Jones and LT
The main advantage of trading using opposite Dow Jones and LT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, LT 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 LT will offset losses from the drop in LT's long position.Dow Jones vs. Antero Midstream Partners | Dow Jones vs. Evergy, | Dow Jones vs. PPL Corporation | Dow Jones vs. China Resources Beer |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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