Correlation Between Dow Jones and Microsoft
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Microsoft 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 Dow Jones and Microsoft into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Microsoft, you can compare the effects of market volatilities on Dow Jones and Microsoft 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 Dow Jones with a short position of Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Microsoft.
Diversification Opportunities for Dow Jones and Microsoft
Modest diversification
The 3 months correlation between Dow and Microsoft is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Dow Jones i.e., Dow Jones and Microsoft go up and down completely randomly.
Pair Corralation between Dow Jones and Microsoft
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.94 times more return on investment than Microsoft. However, Dow Jones Industrial is 1.06 times less risky than Microsoft. It trades about 0.37 of its potential returns per unit of risk. Microsoft is currently generating about 0.17 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 91.3% |
| Values | Daily Returns |
Dow Jones Industrial vs. Microsoft
Performance |
| Timeline |
Dow Jones and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Microsoft
Pair trading matchups for Microsoft
Pair Trading with Dow Jones and Microsoft
The main advantage of trading using opposite Dow Jones and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Microsoft vs. Melia Hotels | Microsoft vs. Host Hotels Resorts | Microsoft vs. AcadeMedia AB | Microsoft vs. Grand Vision Media |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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