Correlation Between Dow Jones and AFRICAN DISTILLERS

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

Diversification Opportunities for Dow Jones and AFRICAN DISTILLERS

0.23

Correlation Coefficient

Dow Jones  AFRICAN DISTILLERS

Modest diversification

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

Pair Corralation between Dow Jones and AFRICAN DISTILLERS

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.59 times less return on investment than AFRICAN DISTILLERS. But when comparing it to its historical volatility, Dow Jones Industrial is 4.46 times less risky than AFRICAN DISTILLERS. It trades about 0.03 of its potential returns per unit of risk. AFRICAN DISTILLERS LIMITED is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  70,000  in AFRICAN DISTILLERS LIMITED on September 28, 2024 and sell it today you would lose (900.00) from holding AFRICAN DISTILLERS LIMITED or give up 1.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Dow Jones Industrial  vs.  AFRICAN DISTILLERS LIMITED

Pair Trading with Dow Jones and AFRICAN DISTILLERS

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

The idea behind Dow Jones Industrial and AFRICAN DISTILLERS LIMITED 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.