Correlation Between Dow Jones and Silver Bullet

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

Diversification Opportunities for Dow Jones and Silver Bullet

0.36

Correlation Coefficient

Dow Jones  Silver Bullet

Weak diversification

The 3 months correlation between Dow and Silver is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Silver Bullet Data in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Silver Bullet Data 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 Silver Bullet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Silver Bullet Data has no effect on the direction of Dow Jones i.e., Dow Jones and Silver Bullet go up and down completely randomly.

Pair Corralation between Dow Jones and Silver Bullet

Assuming the 90 days trading horizon Dow Jones is expected to generate 2.79 times less return on investment than Silver Bullet. But when comparing it to its historical volatility, Dow Jones Industrial is 7.85 times less risky than Silver Bullet. It trades about 0.07 of its potential returns per unit of risk. Silver Bullet Data is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,100  in Silver Bullet Data on October 3, 2024 and sell it today you would lose (850.00) from holding Silver Bullet Data or give up 11.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Dow Jones Industrial  vs.  Silver Bullet Data

Pair Trading with Dow Jones and Silver Bullet

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

The idea behind Dow Jones Industrial and Silver Bullet Data 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.