Correlation Between Dow Jones and Saba Capital

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

Diversification Opportunities for Dow Jones and Saba Capital

0.73

Correlation Coefficient

Dow Jones  Saba Capital

Poor diversification

The 3 months correlation between Dow and Saba is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Saba Capital Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Saba Capital Income 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 Saba Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Saba Capital Income has no effect on the direction of Dow Jones i.e., Dow Jones and Saba Capital go up and down completely randomly.

Pair Corralation between Dow Jones and Saba Capital

Assuming the 90 days trading horizon Dow Jones is expected to generate 3.99 times less return on investment than Saba Capital. In addition to that, Dow Jones is 1.08 times more volatile than Saba Capital Income. It trades about 0.04 of its total potential returns per unit of risk. Saba Capital Income is currently generating about 0.16 per unit of volatility. If you would invest  826.00  in Saba Capital Income on September 22, 2024 and sell it today you would earn a total of  63.00  from holding Saba Capital Income or generate 7.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Dow Jones Industrial  vs.  Saba Capital Income

Pair Trading with Dow Jones and Saba Capital

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

The idea behind Dow Jones Industrial and Saba Capital Income 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.