Correlation Between Dow Jones and BetaShares Solar

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

Diversification Opportunities for Dow Jones and BetaShares Solar

-0.64

Correlation Coefficient

Dow Jones  BetaShares Solar

Excellent diversification

The 3 months correlation between Dow and BetaShares is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and BetaShares Solar ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaShares Solar ETF 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 BetaShares Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaShares Solar ETF has no effect on the direction of Dow Jones i.e., Dow Jones and BetaShares Solar go up and down completely randomly.

Pair Corralation between Dow Jones and BetaShares Solar

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.43 times more return on investment than BetaShares Solar. However, Dow Jones Industrial is 2.35 times less risky than BetaShares Solar. It trades about 0.02 of its potential returns per unit of risk. BetaShares Solar ETF is currently generating about -0.07 per unit of risk. If you would invest  4,206,336  in Dow Jones Industrial on September 20, 2024 and sell it today you would earn a total of  26,351  from holding Dow Jones Industrial or generate 0.63% return on investment over 90 days.

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

Dow Jones Industrial  vs.  BetaShares Solar ETF

Pair Trading with Dow Jones and BetaShares Solar

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

The idea behind Dow Jones Industrial and BetaShares Solar ETF 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.