Correlation Between Dow Jones and Mountain Boy

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

Diversification Opportunities for Dow Jones and Mountain Boy

-0.15

Correlation Coefficient

Dow Jones  Mountain Boy

Good diversification

The 3 months correlation between Dow and Mountain is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Mountain Boy Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mountain Boy Minerals 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 Mountain Boy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mountain Boy Minerals has no effect on the direction of Dow Jones i.e., Dow Jones and Mountain Boy go up and down completely randomly.

Pair Corralation between Dow Jones and Mountain Boy

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Mountain Boy. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 12.1 times less risky than Mountain Boy. The index trades about -0.03 of its potential returns per unit of risk. The Mountain Boy Minerals is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.98  in Mountain Boy Minerals on December 26, 2024 and sell it today you would earn a total of  0.48  from holding Mountain Boy Minerals or generate 48.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Dow Jones Industrial  vs.  Mountain Boy Minerals

Pair Trading with Dow Jones and Mountain Boy

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

The idea behind Dow Jones Industrial and Mountain Boy Minerals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.