Correlation Between Dow Jones and Bancorp
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Bancorp 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 Bancorp 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 The Bancorp, you can compare the effects of market volatilities on Dow Jones and Bancorp 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 Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Bancorp.
Diversification Opportunities for Dow Jones and Bancorp
Very poor diversification
The 3 months correlation between Dow and Bancorp is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and The Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bancorp 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 Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancorp has no effect on the direction of Dow Jones i.e., Dow Jones and Bancorp go up and down completely randomly.
Pair Corralation between Dow Jones and Bancorp
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.04 times less return on investment than Bancorp. But when comparing it to its historical volatility, Dow Jones Industrial is 5.09 times less risky than Bancorp. It trades about 0.2 of its potential returns per unit of risk. The Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,903 in The Bancorp on September 7, 2024 and sell it today you would earn a total of 785.00 from holding The Bancorp or generate 16.01% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Dow Jones Industrial vs. The Bancorp
Performance |
Timeline |
Dow Jones and Bancorp Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
The Bancorp
Pair trading matchups for Bancorp
Pair Trading with Dow Jones and Bancorp
The main advantage of trading using opposite Dow Jones and Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Bancorp 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 Bancorp will offset losses from the drop in Bancorp's long position.Dow Jones vs. Parker Hannifin | Dow Jones vs. Cementos Pacasmayo SAA | Dow Jones vs. Live Ventures | Dow Jones vs. EMCOR Group |
Bancorp vs. Heartland Financial USA | Bancorp vs. Heritage Commerce Corp | Bancorp vs. Business First Bancshares | Bancorp vs. German American Bancorp |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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