Correlation Between Dow Jones and POWR Lithium

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

Diversification Opportunities for Dow Jones and POWR Lithium

0.28

Correlation Coefficient

Dow Jones  POWR Lithium

Modest diversification

The 3 months correlation between Dow and POWR is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and POWR Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POWR Lithium Corp 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 POWR Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POWR Lithium Corp has no effect on the direction of Dow Jones i.e., Dow Jones and POWR Lithium go up and down completely randomly.

Pair Corralation between Dow Jones and POWR Lithium

Assuming the 90 days trading horizon Dow Jones is expected to generate 58.1 times less return on investment than POWR Lithium. But when comparing it to its historical volatility, Dow Jones Industrial is 86.66 times less risky than POWR Lithium. It trades about 0.19 of its potential returns per unit of risk. POWR Lithium Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  4.10  in POWR Lithium Corp on September 9, 2024 and sell it today you would earn a total of  0.50  from holding POWR Lithium Corp or generate 12.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Dow Jones Industrial  vs.  POWR Lithium Corp

Pair Trading with Dow Jones and POWR Lithium

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

The idea behind Dow Jones Industrial and POWR Lithium Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.