Correlation Between Dow Jones and Exxon
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Exxon 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 Exxon 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 EXXON MOBIL CDR, you can compare the effects of market volatilities on Dow Jones and Exxon 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 Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Exxon.
Diversification Opportunities for Dow Jones and Exxon
Very weak diversification
The 3 months correlation between Dow and Exxon is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and EXXON MOBIL CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXXON MOBIL CDR 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 Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXXON MOBIL CDR has no effect on the direction of Dow Jones i.e., Dow Jones and Exxon go up and down completely randomly.
Pair Corralation between Dow Jones and Exxon
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.51 times more return on investment than Exxon. However, Dow Jones Industrial is 1.96 times less risky than Exxon. It trades about -0.04 of its potential returns per unit of risk. EXXON MOBIL CDR is currently generating about -0.05 per unit of risk. If you would invest 4,478,200 in Dow Jones Industrial on December 1, 2024 and sell it today you would lose (94,109) from holding Dow Jones Industrial or give up 2.1% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Dow Jones Industrial vs. EXXON MOBIL CDR
Performance |
Timeline |
Dow Jones and Exxon Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
EXXON MOBIL CDR
Pair trading matchups for Exxon
Pair Trading with Dow Jones and Exxon
The main advantage of trading using opposite Dow Jones and Exxon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Exxon 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 Exxon will offset losses from the drop in Exxon's long position.Dow Jones vs. Cannae Holdings | Dow Jones vs. Fidus Investment Corp | Dow Jones vs. SEI Investments | Dow Jones vs. Cracker Barrel Old |
Exxon vs. CNJ Capital Investments | Exxon vs. Metalero Mining Corp | Exxon vs. Perseus Mining | Exxon vs. Data Communications Management |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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