Correlation Between Dow Jones and Ares Acquisition

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

Diversification Opportunities for Dow Jones and Ares Acquisition

0.1

Correlation Coefficient

Dow Jones  Ares Acquisition

Average diversification

The 3 months correlation between Dow and Ares is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Ares Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Acquisition 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 Ares Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Acquisition has no effect on the direction of Dow Jones i.e., Dow Jones and Ares Acquisition go up and down completely randomly.

Pair Corralation between Dow Jones and Ares Acquisition

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.6 times more return on investment than Ares Acquisition. However, Dow Jones is 1.6 times more volatile than Ares Acquisition. It trades about 0.1 of its potential returns per unit of risk. Ares Acquisition is currently generating about 0.01 per unit of risk. If you would invest  4,150,310  in Dow Jones Industrial on September 18, 2024 and sell it today you would earn a total of  194,680  from holding Dow Jones Industrial or generate 4.69% 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.  Ares Acquisition

Pair Trading with Dow Jones and Ares Acquisition

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

The idea behind Dow Jones Industrial and Ares Acquisition 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.