Correlation Between Dow Jones and Semler Scientific

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

Diversification Opportunities for Dow Jones and Semler Scientific

0.68

Correlation Coefficient

Dow Jones  Semler Scientific

Poor diversification

The 3 months correlation between Dow and Semler is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Semler Scientific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semler Scientific 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 Semler Scientific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semler Scientific has no effect on the direction of Dow Jones i.e., Dow Jones and Semler Scientific go up and down completely randomly.

Pair Corralation between Dow Jones and Semler Scientific

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Semler Scientific. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 10.1 times less risky than Semler Scientific. The index trades about -0.14 of its potential returns per unit of risk. The Semler Scientific is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,643  in Semler Scientific on September 22, 2024 and sell it today you would lose (465.00) from holding Semler Scientific or give up 7.0% of portfolio value over 90 days.

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

Dow Jones Industrial  vs.  Semler Scientific

Pair Trading with Dow Jones and Semler Scientific

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

The idea behind Dow Jones Industrial and Semler Scientific 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 Anywhere module to track or share privately all of your investments from the convenience of any device.