Correlation Between Dow Jones and American Beacon
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Beacon 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 American Beacon 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 American Beacon Balanced, you can compare the effects of market volatilities on Dow Jones and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Beacon.
Diversification Opportunities for Dow Jones and American Beacon
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and American is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Beacon Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Balanced 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Balanced has no effect on the direction of Dow Jones i.e., Dow Jones and American Beacon go up and down completely randomly.
Pair Corralation between Dow Jones and American Beacon
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.8 times more return on investment than American Beacon. However, Dow Jones is 1.8 times more volatile than American Beacon Balanced. It trades about 0.25 of its potential returns per unit of risk. American Beacon Balanced is currently generating about 0.22 per unit of risk. If you would invest 4,238,757 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 233,449 from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Beacon Balanced
Performance |
| Timeline |
Dow Jones and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Beacon Balanced
Pair trading matchups for American Beacon
Pair Trading with Dow Jones and American Beacon
The main advantage of trading using opposite Dow Jones and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| American Beacon vs. American Beacon International | American Beacon vs. American Beacon Large | American Beacon vs. American Beacon Small | American Beacon vs. Dreyfus Opportunistic Midcap |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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