Correlation Between Dow Jones and Hamilton Enhanced

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

Diversification Opportunities for Dow Jones and Hamilton Enhanced

0.93

Correlation Coefficient

Dow Jones  Hamilton Enhanced

Almost no diversification

The 3 months correlation between Dow and Hamilton is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Hamilton Enhanced Canadian in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hamilton Enhanced 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 Hamilton Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hamilton Enhanced has no effect on the direction of Dow Jones i.e., Dow Jones and Hamilton Enhanced go up and down completely randomly.

Pair Corralation between Dow Jones and Hamilton Enhanced

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.93 times less return on investment than Hamilton Enhanced. In addition to that, Dow Jones is 1.13 times more volatile than Hamilton Enhanced Canadian. It trades about 0.2 of its total potential returns per unit of risk. Hamilton Enhanced Canadian is currently generating about 0.43 per unit of volatility. If you would invest  1,680  in Hamilton Enhanced Canadian on September 3, 2024 and sell it today you would earn a total of  332.00  from holding Hamilton Enhanced Canadian or generate 19.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Dow Jones Industrial  vs.  Hamilton Enhanced Canadian

Pair Trading with Dow Jones and Hamilton Enhanced

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

The idea behind Dow Jones Industrial and Hamilton Enhanced 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.