Correlation Between DOW and Japan Alphadex

By analyzing existing cross correlation between DOW and Japan Alphadex, you can compare the effects of market volatilities on DOW and Japan Alphadex 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 with a short position of Japan Alphadex. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Japan Alphadex.

Specify exactly 2 symbols:

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

Diversification Opportunities for DOW and Japan Alphadex

-0.38
  Correlation Coefficient
DOW
Japan Alphadex

Very good diversification

The 3 months correlation between DOW and Japan is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Japan Alphadex in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Japan Alphadex and DOW 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 are associated (or correlated) with Japan Alphadex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Alphadex has no effect on the direction of DOW i.e., DOW and Japan Alphadex go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Japan Alphadex

Given the investment horizon of 90 days DOW is expected to generate 0.79 times more return on investment than Japan Alphadex. However, DOW is 1.27 times less risky than Japan Alphadex. It trades about 0.13 of its potential returns per unit of risk. Japan Alphadex is currently generating about 0.04 per unit of risk. If you would invest  2,746,319  in DOW on July 24, 2021 and sell it today you would earn a total of  821,088  from holding DOW or generate 29.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Japan Alphadex

 Performance (%) 
      Timeline 

DOW and Japan Alphadex Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Salesforce vs. DOW
GM vs. DOW
BRAGG GAMING vs. DOW
Freeport Mcmoran vs. DOW
Total SE vs. DOW
Manulife Financial vs. DOW
Union Pacific vs. DOW
Mountain Valley vs. DOW
BIRCHCLIFF ENERGY vs. DOW
Ford vs. DOW
Citigroup vs. DOW
Alphabet vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Pair Trading with DOW and Japan Alphadex

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

DOW

Pair trading matchups for DOW

Royal Wins vs. DOW
Citigroup vs. DOW
Mountain Valley vs. DOW
ANDREW PELLER vs. DOW
Plantfuel Life vs. DOW
Manulife Financial vs. DOW
ALGONQUIN POWER vs. DOW
CORUS ENTERTAINMENT vs. DOW
Sentinelone Inc vs. DOW
Freeport Mcmoran vs. DOW
GM vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
The idea behind DOW and Japan Alphadex 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

Other Complementary Tools

Commodity Channel Index
Use Commodity Channel Index to analyze current equity momentum
Go
Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Financial Widgets
Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets
Go
Sync Your Broker
Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors.
Go
Technical Analysis
Check basic technical indicators and analysis based on most latest market data
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Focused Opportunities
Build portfolios using our predefined set of ideas and optimize them against your investing preferences
Go
Earnings Calls
Check upcoming earnings announcements updated hourly across public exchanges
Go
ETF Directory
Find actively traded Exchange Traded Funds (ETF) from around the world
Go
Portfolio Comparator
Compare the composition, asset allocations and performance of any two portfolios in your account
Go