Correlation Between Dow Jones and Stamper Oil

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

Diversification Opportunities for Dow Jones and Stamper Oil

-0.07

Correlation Coefficient

Dow Jones  Stamper Oil

Good diversification

The 3 months correlation between Dow and Stamper is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Stamper Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stamper Oil Gas 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 Stamper Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stamper Oil Gas has no effect on the direction of Dow Jones i.e., Dow Jones and Stamper Oil go up and down completely randomly.

Pair Corralation between Dow Jones and Stamper Oil

Assuming the 90 days trading horizon Dow Jones is expected to generate 96.45 times less return on investment than Stamper Oil. But when comparing it to its historical volatility, Dow Jones Industrial is 86.42 times less risky than Stamper Oil. It trades about 0.06 of its potential returns per unit of risk. Stamper Oil Gas is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  23.00  in Stamper Oil Gas on October 4, 2024 and sell it today you would lose (22.00) from holding Stamper Oil Gas or give up 95.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Dow Jones Industrial  vs.  Stamper Oil Gas

Pair Trading with Dow Jones and Stamper Oil

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

The idea behind Dow Jones Industrial and Stamper Oil Gas 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.