Correlation Between Livermore Investments and Dow Jones

Can any of the company-specific risk be diversified away by investing in both Livermore Investments and Dow Jones 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 Livermore Investments and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Livermore Investments Group and Dow Jones Industrial, you can compare the effects of market volatilities on Livermore Investments and Dow Jones 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 Livermore Investments with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Livermore Investments and Dow Jones.

Diversification Opportunities for Livermore Investments and Dow Jones

-0.23

Correlation Coefficient

Livermore Investments  Dow Jones

Very good diversification

The 3 months correlation between Livermore and Dow is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Livermore Investments Group and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Livermore Investments 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 Livermore Investments Group are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Livermore Investments i.e., Livermore Investments and Dow Jones go up and down completely randomly.

Pair Corralation between Livermore Investments and Dow Jones

Assuming the 90 days trading horizon Livermore Investments Group is expected to generate 2.85 times more return on investment than Dow Jones. However, Livermore Investments is 2.85 times more volatile than Dow Jones Industrial. It trades about 0.2 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.04 per unit of risk. If you would invest  5,150  in Livermore Investments Group on December 31, 2024 and sell it today you would earn a total of  1,800  from holding Livermore Investments Group or generate 34.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Livermore Investments Group  vs.  Dow Jones Industrial

Pair Trading with Livermore Investments and Dow Jones

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

The idea behind Livermore Investments Group and Dow Jones Industrial 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.