Correlation Between Dow Jones and Keurig Dr

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

Diversification Opportunities for Dow Jones and Keurig Dr

-0.38

Correlation Coefficient

Dow Jones  Keurig Dr

Very good diversification

The 3 months correlation between Dow and Keurig is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Keurig Dr Pepper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Keurig Dr Pepper 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 Keurig Dr. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Keurig Dr Pepper has no effect on the direction of Dow Jones i.e., Dow Jones and Keurig Dr go up and down completely randomly.

Pair Corralation between Dow Jones and Keurig Dr

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.57 times more return on investment than Keurig Dr. However, Dow Jones Industrial is 1.76 times less risky than Keurig Dr. It trades about 0.05 of its potential returns per unit of risk. Keurig Dr Pepper is currently generating about -0.08 per unit of risk. If you would invest  4,231,300  in Dow Jones Industrial on September 27, 2024 and sell it today you would earn a total of  98,403  from holding Dow Jones Industrial or generate 2.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Dow Jones Industrial  vs.  Keurig Dr Pepper

Pair Trading with Dow Jones and Keurig Dr

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

The idea behind Dow Jones Industrial and Keurig Dr Pepper 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.