Correlation Between Dow Jones and NAXS Nordic

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

Diversification Opportunities for Dow Jones and NAXS Nordic

-0.67

Correlation Coefficient

Dow Jones  NAXS Nordic

Excellent diversification

The 3 months correlation between Dow and NAXS is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and NAXS Nordic Access in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAXS Nordic Access 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 NAXS Nordic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAXS Nordic Access has no effect on the direction of Dow Jones i.e., Dow Jones and NAXS Nordic go up and down completely randomly.

Pair Corralation between Dow Jones and NAXS Nordic

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the NAXS Nordic. In addition to that, Dow Jones is 1.7 times more volatile than NAXS Nordic Access. It trades about -0.3 of its total potential returns per unit of risk. NAXS Nordic Access is currently generating about -0.17 per unit of volatility. If you would invest  5,160  in NAXS Nordic Access on September 24, 2024 and sell it today you would lose (80.00) from holding NAXS Nordic Access or give up 1.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Dow Jones Industrial  vs.  NAXS Nordic Access

Pair Trading with Dow Jones and NAXS Nordic

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

The idea behind Dow Jones Industrial and NAXS Nordic Access 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 Transaction History module to view history of all your transactions and understand their impact on performance.