Correlation Between Dow Jones and Odyssey Semiconductor

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

Diversification Opportunities for Dow Jones and Odyssey Semiconductor

0.35

Correlation Coefficient

Dow Jones  Odyssey Semiconductor

Weak diversification

The 3 months correlation between Dow and Odyssey is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Odyssey Semiconductor Technolo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odyssey Semiconductor 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 Odyssey Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odyssey Semiconductor has no effect on the direction of Dow Jones i.e., Dow Jones and Odyssey Semiconductor go up and down completely randomly.

Pair Corralation between Dow Jones and Odyssey Semiconductor

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Odyssey Semiconductor. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 33.08 times less risky than Odyssey Semiconductor. The index trades about -0.21 of its potential returns per unit of risk. The Odyssey Semiconductor Technologies is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2.56  in Odyssey Semiconductor Technologies on September 23, 2024 and sell it today you would lose (0.56) from holding Odyssey Semiconductor Technologies or give up 21.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Dow Jones Industrial  vs.  Odyssey Semiconductor Technolo

Pair Trading with Dow Jones and Odyssey Semiconductor

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

The idea behind Dow Jones Industrial and Odyssey Semiconductor Technologies 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.