Finding the Identical Twin
Dr. Ashwin G. Modi Sr.
Hemchandracharya North Gujarat University
Shri Chimanbhai Patel Institute of Management & Research
Dr. Ashvin Ramchandra Dave
Pandit Deendayal Petroleum University
Kinjal Jay Desai
Corporate Solutions Group, SBI Life Insurance Co. Ltd.
December 30, 2011
Econometrics: Multiple Equation Models eJournal, Vol 5, No. 1, January 09, 2012
In this paper we examine correlation and mean reverting behavior of Dow Jones Industrial Average, with ten stock markets from Asia, Europe and America. Along with correlation test, Augmented Dickey Fuller Test is conducted to test the mean reverting behavior of time series. We found that all the markets are positively correlated with DJIA. We also confirm that high degree of correlation does not result in mean reversion between two time series.
Number of Pages in PDF File: 10
Keywords: Dow Jones, Augmented Dickey Fuller Test, Correlation, Pairs Trading, World Markets, Time Series, Portfolio Management, Hedging, Portfolio Balancing, Risk Management
Date posted: December 31, 2011 ; Last revised: January 11, 2012