Correlation Between Pro Blend and Dow Jones

Can any of the company-specific risk be diversified away by investing in both Pro Blend 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 Pro Blend and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pro Blend Maximum Term and Dow Jones Industrial, you can compare the effects of market volatilities on Pro Blend 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 Pro Blend with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pro Blend and Dow Jones.

Diversification Opportunities for Pro Blend and Dow Jones

0.86

Correlation Coefficient

Pro Blend  Dow Jones

Very poor diversification

The 3 months correlation between Pro and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Pro Blend Maximum Term 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 Pro Blend 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 Pro Blend Maximum Term 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 Pro Blend i.e., Pro Blend and Dow Jones go up and down completely randomly.

Pair Corralation between Pro Blend and Dow Jones

Assuming the 90 days horizon Pro Blend Maximum Term is expected to under-perform the Dow Jones. In addition to that, Pro Blend is 1.25 times more volatile than Dow Jones Industrial. It trades about -0.03 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.12 per unit of volatility. If you would invest  4,162,208  in Dow Jones Industrial on September 14, 2024 and sell it today you would earn a total of  229,204  from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Pro Blend Maximum Term  vs.  Dow Jones Industrial

Pair Trading with Pro Blend and Dow Jones

The main advantage of trading using opposite Pro Blend and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pro Blend 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 Pro Blend Maximum Term 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.