Correlation Between Dow Jones and Blackrock Enhanced

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

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

Diversification Opportunities for Dow Jones and Blackrock Enhanced

0.3

Correlation Coefficient

Dow Jones  Blackrock Enhanced

Weak diversification

The 3 months correlation between Dow and Blackrock is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Blackrock Enhanced Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackrock Enhanced 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 Industrial are associated (or correlated) with Blackrock Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackrock Enhanced has no effect on the direction of Dow Jones i.e., Dow Jones and Blackrock Enhanced go up and down completely randomly.

Pair Corralation between Dow Jones and Blackrock Enhanced

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.02 times more return on investment than Blackrock Enhanced. However, Dow Jones is 1.02 times more volatile than Blackrock Enhanced Capital. It trades about 0.24 of its potential returns per unit of risk. Blackrock Enhanced Capital is currently generating about 0.12 per unit of risk. If you would invest  4,093,693  in Dow Jones Industrial on July 4, 2024 and sell it today you would earn a total of  122,004  from holding Dow Jones Industrial or generate 2.98% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Blackrock Enhanced Capital

Pair Trading with Dow Jones and Blackrock Enhanced

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

The idea behind Dow Jones Industrial and Blackrock Enhanced Capital 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.