Correlation Between HEG and Dow Jones

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Can any of the company-specific risk be diversified away by investing in both HEG and Dow Jones 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 HEG and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HEG Limited and Dow Jones Industrial, you can compare the effects of market volatilities on HEG and Dow Jones 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 HEG with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEG and Dow Jones.

Diversification Opportunities for HEG and Dow Jones

HEGDowDiversified AwayHEGDowDiversified Away100%
0.17
  Correlation Coefficient

Average diversification

The 3 months correlation between HEG and Dow is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and HEG 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 HEG Limited are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of HEG i.e., HEG and Dow Jones go up and down completely randomly.
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Pair Corralation between HEG and Dow Jones

Assuming the 90 days trading horizon HEG Limited is expected to generate 5.12 times more return on investment than Dow Jones. However, HEG is 5.12 times more volatile than Dow Jones Industrial. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.04 per unit of risk. If you would invest  45,067  in HEG Limited on September 23, 2024 and sell it today you would earn a total of  9,088  from holding HEG Limited or generate 20.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy98.46%
ValuesDaily Returns

HEG Limited  vs.  Dow Jones Industrial

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -100102030
JavaScript chart by amCharts 3.21.15HEG DJI
       Timeline  

HEG and Dow Jones Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-12.6-9.44-6.27-3.110.03.196.489.7813.0716.37 0.10.20.30.40.50.6
JavaScript chart by amCharts 3.21.15HEG DJI
       Returns  

Pair Trading with HEG and Dow Jones

The main advantage of trading using opposite HEG and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HEG position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.
The idea behind HEG Limited and Dow Jones Industrial 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.

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