Correlation Between MSCI and Dow Jones
Can any of the company-specific risk be diversified away by investing in both MSCI 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 MSCI and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MSCI Inc and Dow Jones Industrial, you can compare the effects of market volatilities on MSCI 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 MSCI with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI and Dow Jones.
Diversification Opportunities for MSCI and Dow Jones
Poor diversification
The 3 months correlation between MSCI and Dow is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding MSCI 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 MSCI 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 MSCI 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 MSCI i.e., MSCI and Dow Jones go up and down completely randomly.
Pair Corralation between MSCI and Dow Jones
Assuming the 90 days trading horizon MSCI Inc is expected to generate 1.91 times more return on investment than Dow Jones. However, MSCI is 1.91 times more volatile than Dow Jones Industrial. It trades about 0.13 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.16 per unit of risk. If you would invest 45,359 in MSCI Inc on September 1, 2024 and sell it today you would earn a total of 12,181 from holding MSCI Inc or generate 26.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 96.92% |
| Values | Daily Returns |
MSCI Inc vs. Dow Jones Industrial
Performance |
| Timeline |
MSCI and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
MSCI Inc
Pair trading matchups for MSCI
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with MSCI and Dow Jones
The main advantage of trading using opposite MSCI and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MSCI 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.| MSCI vs. Caseys General Stores | MSCI vs. Natural Health Trends | MSCI vs. Sabra Health Care | MSCI vs. RETAIL FOOD GROUP |
| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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