Correlation Between Dow Jones and Evolve Active

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

Diversification Opportunities for Dow Jones and Evolve Active

-0.04

Correlation Coefficient

Dow Jones  Evolve Active

Good diversification

The 3 months correlation between Dow and Evolve is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Evolve Active Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evolve Active Canadian 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 Evolve Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evolve Active Canadian has no effect on the direction of Dow Jones i.e., Dow Jones and Evolve Active go up and down completely randomly.

Pair Corralation between Dow Jones and Evolve Active

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Evolve Active. In addition to that, Dow Jones is 3.49 times more volatile than Evolve Active Canadian. It trades about -0.28 of its total potential returns per unit of risk. Evolve Active Canadian is currently generating about 0.28 per unit of volatility. If you would invest  1,602  in Evolve Active Canadian on September 29, 2024 and sell it today you would earn a total of  19.00  from holding Evolve Active Canadian or generate 1.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Dow Jones Industrial  vs.  Evolve Active Canadian

Pair Trading with Dow Jones and Evolve Active

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

The idea behind Dow Jones Industrial and Evolve Active Canadian 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.