Correlation Between Dow Jones and Alchemy Investments

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

Diversification Opportunities for Dow Jones and Alchemy Investments

0.12

Correlation Coefficient

Dow Jones  Alchemy Investments

Average diversification

The 3 months correlation between Dow and Alchemy is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Alchemy Investments Acquisitio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alchemy Investments 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 Alchemy Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alchemy Investments has no effect on the direction of Dow Jones i.e., Dow Jones and Alchemy Investments go up and down completely randomly.

Pair Corralation between Dow Jones and Alchemy Investments

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.46 times more return on investment than Alchemy Investments. However, Dow Jones Industrial is 2.16 times less risky than Alchemy Investments. It trades about 0.13 of its potential returns per unit of risk. Alchemy Investments Acquisition is currently generating about 0.02 per unit of risk. If you would invest  3,877,810  in Dow Jones Industrial on September 15, 2024 and sell it today you would earn a total of  504,996  from holding Dow Jones Industrial or generate 13.02% 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.  Alchemy Investments Acquisitio

Pair Trading with Dow Jones and Alchemy Investments

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

The idea behind Dow Jones Industrial and Alchemy Investments 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.