Correlation Between Dow Jones and Motisons Jewellers

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

Diversification Opportunities for Dow Jones and Motisons Jewellers

-0.13

Correlation Coefficient

Dow Jones  Motisons Jewellers

Good diversification

The 3 months correlation between Dow and Motisons is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Motisons Jewellers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Motisons Jewellers 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 Motisons Jewellers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Motisons Jewellers has no effect on the direction of Dow Jones i.e., Dow Jones and Motisons Jewellers go up and down completely randomly.

Pair Corralation between Dow Jones and Motisons Jewellers

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.27 times more return on investment than Motisons Jewellers. However, Dow Jones Industrial is 3.69 times less risky than Motisons Jewellers. It trades about 0.02 of its potential returns per unit of risk. Motisons Jewellers is currently generating about -0.02 per unit of risk. If you would invest  4,206,336  in Dow Jones Industrial on September 20, 2024 and sell it today you would earn a total of  26,351  from holding Dow Jones Industrial or generate 0.63% 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.  Motisons Jewellers

Pair Trading with Dow Jones and Motisons Jewellers

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

The idea behind Dow Jones Industrial and Motisons Jewellers 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.