Correlation Between Diamond Offshore and DOW JONES

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

Diversification Opportunities for Diamond Offshore and DOW JONES

0.11
  Correlation Coefficient

Average diversification

The 3 months correlation between Diamond and DOW JONES is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Offshore Drilling 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 Diamond Offshore 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 Diamond Offshore Drilling 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 Diamond Offshore i.e., Diamond Offshore and DOW JONES go up and down completely randomly.
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Pair Corralation between Diamond Offshore and DOW JONES

Allowing for the 90-day total investment horizon Diamond Offshore Drilling is expected to generate 4.75 times more return on investment than DOW JONES. However, Diamond Offshore is 4.75 times more volatile than DOW JONES INDUSTRIAL. It trades about 0.24 of its potential returns per unit of risk. DOW JONES INDUSTRIAL is currently generating about 0.43 per unit of risk. If you would invest  999.00  in Diamond Offshore Drilling on October 29, 2022 and sell it today you would earn a total of  177.00  from holding Diamond Offshore Drilling or generate 17.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy65.0%
ValuesDaily Returns

Diamond Offshore Drilling  vs.  DOW JONES INDUSTRIAL

 Performance (%) 
       Timeline  

Diamond Offshore and DOW JONES Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diamond Offshore and DOW JONES

The main advantage of trading using opposite Diamond Offshore and DOW JONES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Offshore 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's long position.
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The idea behind Diamond Offshore Drilling 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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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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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