Correlation Between Diversified Bond and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Diversified Bond 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 Diversified Bond and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Bond Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Diversified Bond 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 Diversified Bond with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Bond and Dow Jones.
Diversification Opportunities for Diversified Bond and Dow Jones
0.53 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Diversified and Dow is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Bond Fund 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 Diversified Bond 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 Diversified Bond Fund 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 Diversified Bond i.e., Diversified Bond and Dow Jones go up and down completely randomly.
Pair Corralation between Diversified Bond and Dow Jones
Assuming the 90 days horizon Diversified Bond is expected to generate 20.57 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Diversified Bond Fund is 2.22 times less risky than Dow Jones. It trades about 0.04 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 4,239,227 in Dow Jones Industrial on November 3, 2024 and sell it today you would earn a total of 215,239 from holding Dow Jones Industrial or generate 5.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Diversified Bond Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Diversified Bond and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Diversified Bond Fund
Pair trading matchups for Diversified Bond
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Diversified Bond and Dow Jones
The main advantage of trading using opposite Diversified Bond and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Bond 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.| Diversified Bond vs. Live Oak Health | Diversified Bond vs. Lord Abbett Health | Diversified Bond vs. Eventide Healthcare Life | Diversified Bond vs. Vanguard Health Care |
| Dow Jones vs. Rambler Metals and | Dow Jones vs. Nicola Mining | Dow Jones vs. Old Dominion Freight | Dow Jones vs. United Guardian |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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