Correlation Between Dow Jones and FORWARD AIR

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

Diversification Opportunities for Dow Jones and FORWARD AIR

0.87

Correlation Coefficient

Dow Jones  FORWARD AIR

Very poor diversification

The 3 months correlation between Dow and FORWARD is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and FORWARD AIR P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FORWARD AIR P 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 FORWARD AIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FORWARD AIR P has no effect on the direction of Dow Jones i.e., Dow Jones and FORWARD AIR go up and down completely randomly.

Pair Corralation between Dow Jones and FORWARD AIR

Assuming the 90 days trading horizon Dow Jones is expected to generate 5.26 times less return on investment than FORWARD AIR. But when comparing it to its historical volatility, Dow Jones Industrial is 5.84 times less risky than FORWARD AIR. It trades about 0.26 of its potential returns per unit of risk. FORWARD AIR P is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  1,250  in FORWARD AIR P on April 22, 2025 and sell it today you would earn a total of  1,065  from holding FORWARD AIR P or generate 85.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.88%
Values	Daily Returns

Dow Jones Industrial  vs.  FORWARD AIR P

Pair Trading with Dow Jones and FORWARD AIR

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

The idea behind Dow Jones Industrial and FORWARD AIR P 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.