Correlation Between Nasdaq and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Nasdaq 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 Nasdaq and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq Inc and Dow Jones Industrial, you can compare the effects of market volatilities on Nasdaq 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 Nasdaq with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq and Dow Jones.
Diversification Opportunities for Nasdaq and Dow Jones
Very poor diversification
The 3 months correlation between Nasdaq and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq Inc 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 Nasdaq 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 Nasdaq Inc 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 Nasdaq i.e., Nasdaq and Dow Jones go up and down completely randomly.
Pair Corralation between Nasdaq and Dow Jones
Assuming the 90 days trading horizon Nasdaq Inc is expected to generate 0.9 times more return on investment than Dow Jones. However, Nasdaq Inc is 1.11 times less risky than Dow Jones. It trades about 0.56 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.36 per unit of risk. If you would invest 7,486 in Nasdaq Inc on September 4, 2024 and sell it today you would earn a total of 803.00 from holding Nasdaq Inc or generate 10.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Nasdaq Inc vs. Dow Jones Industrial
Performance |
| Timeline |
Nasdaq and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Nasdaq Inc
Pair trading matchups for Nasdaq
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Nasdaq and Dow Jones
The main advantage of trading using opposite Nasdaq and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 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' long position.| Nasdaq vs. Broadridge Financial Solutions | Nasdaq vs. Virgin Wines UK | Nasdaq vs. MTI Wireless Edge | Nasdaq vs. Zegona Communications Plc |
| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
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 the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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