Can any of the company-specific risk be diversified away by investing in both Dow Jones and 90331HPL1 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 90331HPL1 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 US BANK NATIONAL, you can compare the effects of market volatilities on Dow Jones and 90331HPL1 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 90331HPL1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and 90331HPL1.
Diversification Opportunities for Dow Jones and 90331HPL1
The 3 months correlation between Dow and 90331HPL1 is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Toys and US BANK NATIONAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US BANK NATIONAL 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 90331HPL1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US BANK NATIONAL has no effect on the direction of Dow Jones i.e., Dow Jones and 90331HPL1 go up and down completely randomly.
Assuming the 90 days horizon Dow Jones Toys is expected to generate 0.34 times more return on investment than 90331HPL1. However, Dow Jones Toys is 2.94 times less risky than 90331HPL1. It trades about 0.15 of its potential returns per unit of risk. US BANK NATIONAL is currently generating about -0.33 per unit of risk. If you would invest 2,418 in Dow Jones Toys on March 6, 2024 and sell it today you would earn a total of 21.07 from holding Dow Jones Toys or generate 0.87% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Dow Jones Toys are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dow Jones may actually be approaching a critical reversion point that can send shares even higher in July 2024.
Over the last 90 days US BANK NATIONAL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 90331HPL1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.