Correlation Between Creek Road and Dow Jones

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

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

Diversification Opportunities for Creek Road and Dow Jones

0.8

Correlation Coefficient

Creek Road  Dow Jones

Very poor diversification

The 3 months correlation between Creek and Dow is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Creek Road Miners 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 Creek Road 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 Creek Road Miners 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 Creek Road i.e., Creek Road and Dow Jones go up and down completely randomly.

Pair Corralation between Creek Road and Dow Jones

If you would invest  4,160,618  in Dow Jones Industrial on September 17, 2024 and sell it today you would earn a total of  211,130  from holding Dow Jones Industrial or generate 5.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	1.54%
Values	Daily Returns

Creek Road Miners  vs.  Dow Jones Industrial

Pair Trading with Creek Road and Dow Jones

The main advantage of trading using opposite Creek Road and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Creek Road 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 Creek Road Miners 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.