Correlation Between Dow Jones and Nahar Poly

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

Diversification Opportunities for Dow Jones and Nahar Poly

0.25

Correlation Coefficient

Dow Jones  Nahar Poly

Modest diversification

The 3 months correlation between Dow and Nahar is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Nahar Poly Films in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nahar Poly Films 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 Nahar Poly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nahar Poly Films has no effect on the direction of Dow Jones i.e., Dow Jones and Nahar Poly go up and down completely randomly.

Pair Corralation between Dow Jones and Nahar Poly

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.1 times less return on investment than Nahar Poly. But when comparing it to its historical volatility, Dow Jones Industrial is 3.35 times less risky than Nahar Poly. It trades about 0.2 of its potential returns per unit of risk. Nahar Poly Films is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  26,470  in Nahar Poly Films on September 5, 2024 and sell it today you would earn a total of  2,305  from holding Nahar Poly Films or generate 8.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Dow Jones Industrial  vs.  Nahar Poly Films

Pair Trading with Dow Jones and Nahar Poly

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

The idea behind Dow Jones Industrial and Nahar Poly Films 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 Global Correlations module to find global opportunities by holding instruments from different markets.