Correlation Between Dow Jones and Sanyo Chemical

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

Diversification Opportunities for Dow Jones and Sanyo Chemical

-0.52

Correlation Coefficient

Dow Jones  Sanyo Chemical

Excellent diversification

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

Pair Corralation between Dow Jones and Sanyo Chemical

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.59 times more return on investment than Sanyo Chemical. However, Dow Jones Industrial is 1.7 times less risky than Sanyo Chemical. It trades about 0.16 of its potential returns per unit of risk. Sanyo Chemical Industries is currently generating about 0.05 per unit of risk. If you would invest  3,880,733  in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of  610,332  from holding Dow Jones Industrial or generate 15.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.9%
Values	Daily Returns

Dow Jones Industrial  vs.  Sanyo Chemical Industries

Pair Trading with Dow Jones and Sanyo Chemical

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

The idea behind Dow Jones Industrial and Sanyo Chemical Industries 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.