Correlation Between Dow Jones and Danh Khoi

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

Diversification Opportunities for Dow Jones and Danh Khoi

0.45

Correlation Coefficient

Dow Jones  Danh Khoi

Very weak diversification

The 3 months correlation between Dow and Danh is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Danh Khoi Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danh Khoi Group 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 Danh Khoi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danh Khoi Group has no effect on the direction of Dow Jones i.e., Dow Jones and Danh Khoi go up and down completely randomly.

Pair Corralation between Dow Jones and Danh Khoi

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Danh Khoi. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 4.95 times less risky than Danh Khoi. The index trades about -0.27 of its potential returns per unit of risk. The Danh Khoi Group is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  410,000  in Danh Khoi Group on September 29, 2024 and sell it today you would earn a total of  80,000  from holding Danh Khoi Group or generate 19.51% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Danh Khoi Group

Pair Trading with Dow Jones and Danh Khoi

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

The idea behind Dow Jones Industrial and Danh Khoi Group 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.