Correlation Between Dow Jones and Necessity Retail

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

Diversification Opportunities for Dow Jones and Necessity Retail

0.52

Correlation Coefficient

Dow Jones  Necessity Retail

Very weak diversification

The 3 months correlation between Dow and Necessity is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Necessity Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Necessity Retail REIT 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 Necessity Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Necessity Retail REIT has no effect on the direction of Dow Jones i.e., Dow Jones and Necessity Retail go up and down completely randomly.

Pair Corralation between Dow Jones and Necessity Retail

If you would invest  4,139,378  in Dow Jones Industrial on September 13, 2024 and sell it today you would earn a total of  252,034  from holding Dow Jones Industrial or generate 6.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

Dow Jones Industrial  vs.  Necessity Retail REIT

Pair Trading with Dow Jones and Necessity Retail

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

The idea behind Dow Jones Industrial and Necessity Retail REIT 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.

Check out your portfolio center.

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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.