Correlation Between Dow Jones and Payden Regal

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

Diversification Opportunities for Dow Jones and Payden Regal

0.35

Correlation Coefficient

Dow Jones  Payden Regal

Weak diversification

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

Pair Corralation between Dow Jones and Payden Regal

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Payden Regal. In addition to that, Dow Jones is 4.69 times more volatile than The Payden Regal. It trades about -0.04 of its total potential returns per unit of risk. The Payden Regal is currently generating about 0.1 per unit of volatility. If you would invest  621.00  in The Payden Regal on December 28, 2024 and sell it today you would earn a total of  7.00  from holding The Payden Regal or generate 1.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Dow Jones Industrial  vs.  The Payden Regal

Pair Trading with Dow Jones and Payden Regal

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

The idea behind Dow Jones Industrial and The Payden Regal 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.