Correlation Between Dow Jones and Safety Shot

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

Diversification Opportunities for Dow Jones and Safety Shot

-0.53

Correlation Coefficient

Dow Jones  Safety Shot

Excellent diversification

The 3 months correlation between Dow and Safety is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Safety Shot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Shot 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 Safety Shot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Shot has no effect on the direction of Dow Jones i.e., Dow Jones and Safety Shot go up and down completely randomly.

Pair Corralation between Dow Jones and Safety Shot

Assuming the 90 days trading horizon Dow Jones is expected to generate 27.93 times less return on investment than Safety Shot. But when comparing it to its historical volatility, Dow Jones Industrial is 23.37 times less risky than Safety Shot. It trades about 0.04 of its potential returns per unit of risk. Safety Shot is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Safety Shot on September 21, 2024 and sell it today you would lose (10.00) from holding Safety Shot or give up 35.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.63%
Values	Daily Returns

Dow Jones Industrial  vs.  Safety Shot

Pair Trading with Dow Jones and Safety Shot

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

The idea behind Dow Jones Industrial and Safety Shot 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.