Correlation Between Dow Jones and National Beverage

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

By analyzing existing cross correlation between Dow Jones Toys and National Beverage Corp, you can compare the effects of market volatilities on Dow Jones and National Beverage 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 National Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and National Beverage.

Diversification Opportunities for Dow Jones and National Beverage

-0.66

Correlation Coefficient

Dow Jones  National Beverage

Excellent diversification

The 3 months correlation between Dow and National is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Toys and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp 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 Toys are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Dow Jones i.e., Dow Jones and National Beverage go up and down completely randomly.

Pair Corralation between Dow Jones and National Beverage

Assuming the 90 days horizon Dow Jones Toys is expected to generate 1.0 times more return on investment than National Beverage. However, Dow Jones is 1.0 times more volatile than National Beverage Corp. It trades about 0.05 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.01 per unit of risk. If you would invest  2,057  in Dow Jones Toys on February 23, 2024 and sell it today you would earn a total of  395.00  from holding Dow Jones Toys or generate 19.2% return on investment over 90 days.

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

Dow Jones Toys  vs.  National Beverage Corp

Dow Jones Toys

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Jones Toys are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dow Jones displayed solid returns over the last few months and may actually be approaching a breakup point.

National Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Dow Jones and National Beverage

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

The idea behind Dow Jones Toys and National Beverage Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.