Correlation Between Dow Jones and Embark Commodity

Can any of the company-specific risk be diversified away by investing in both Dow Jones and Embark Commodity 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 Embark Commodity 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 Embark Commodity Strategy, you can compare the effects of market volatilities on Dow Jones and Embark Commodity 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 Embark Commodity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Embark Commodity.

Diversification Opportunities for Dow Jones and Embark Commodity

0.57

Correlation Coefficient

Dow Jones  Embark Commodity

Very weak diversification

The 3 months correlation between Dow and Embark is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Embark Commodity Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embark Commodity Strategy 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 Embark Commodity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embark Commodity Strategy has no effect on the direction of Dow Jones i.e., Dow Jones and Embark Commodity go up and down completely randomly.

Pair Corralation between Dow Jones and Embark Commodity

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.05 times more return on investment than Embark Commodity. However, Dow Jones is 1.05 times more volatile than Embark Commodity Strategy. It trades about 0.15 of its potential returns per unit of risk. Embark Commodity Strategy is currently generating about 0.06 per unit of risk. If you would invest  4,121,883  in Dow Jones Industrial on May 3, 2025 and sell it today you would earn a total of  291,215  from holding Dow Jones Industrial or generate 7.07% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Embark Commodity Strategy

Pair Trading with Dow Jones and Embark Commodity

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

The idea behind Dow Jones Industrial and Embark Commodity Strategy 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.