Correlation Between Dow Jones and Sixth Street

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

Diversification Opportunities for Dow Jones and Sixth Street

0.09

Correlation Coefficient

Dow Jones  Sixth Street

Significant diversification

The 3 months correlation between Dow and Sixth is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Sixth Street Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sixth Street Specialty 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 Sixth Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sixth Street Specialty has no effect on the direction of Dow Jones i.e., Dow Jones and Sixth Street go up and down completely randomly.

Pair Corralation between Dow Jones and Sixth Street

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Sixth Street. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.07 times less risky than Sixth Street. The index trades about -0.04 of its potential returns per unit of risk. The Sixth Street Specialty is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,079  in Sixth Street Specialty on December 29, 2024 and sell it today you would earn a total of  155.00  from holding Sixth Street Specialty or generate 7.46% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Sixth Street Specialty

Pair Trading with Dow Jones and Sixth Street

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

The idea behind Dow Jones Industrial and Sixth Street Specialty 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.