Correlation Between IShares Edge and Dow Jones
Can any of the company-specific risk be diversified away by investing in both IShares Edge 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 IShares Edge and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Edge MSCI and Dow Jones Industrial, you can compare the effects of market volatilities on IShares Edge 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 IShares Edge with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Edge and Dow Jones.
Diversification Opportunities for IShares Edge and Dow Jones
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IShares and Dow is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge MSCI 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 IShares Edge 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 iShares Edge MSCI 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 IShares Edge i.e., IShares Edge and Dow Jones go up and down completely randomly.
Pair Corralation between IShares Edge and Dow Jones
Assuming the 90 days trading horizon IShares Edge is expected to generate 1.21 times less return on investment than Dow Jones. But when comparing it to its historical volatility, iShares Edge MSCI is 1.1 times less risky than Dow Jones. It trades about 0.14 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 3,868,632 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 603,574 from holding Dow Jones Industrial or generate 15.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.44% |
| Values | Daily Returns |
iShares Edge MSCI vs. Dow Jones Industrial
Performance |
| Timeline |
IShares Edge and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
iShares Edge MSCI
Pair trading matchups for IShares Edge
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with IShares Edge and Dow Jones
The main advantage of trading using opposite IShares Edge and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Edge 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.| IShares Edge vs. SPDR SP 500 | IShares Edge vs. Vanguard Total Market | IShares Edge vs. iShares Core SP | IShares Edge vs. iShares Core SP |
| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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