Correlation Between Dow Jones and Equity Income
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Equity Income 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 Equity Income 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 Equity Income Fund, you can compare the effects of market volatilities on Dow Jones and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Equity Income.
Diversification Opportunities for Dow Jones and Equity Income
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Equity is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Dow Jones i.e., Dow Jones and Equity Income go up and down completely randomly.
Pair Corralation between Dow Jones and Equity Income
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.14 times more return on investment than Equity Income. However, Dow Jones is 1.14 times more volatile than Equity Income Fund. It trades about 0.05 of its potential returns per unit of risk. Equity Income Fund is currently generating about -0.01 per unit of risk. If you would invest 3,382,616 in Dow Jones Industrial on January 16, 2025 and sell it today you would earn a total of 654,280 from holding Dow Jones Industrial or generate 19.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. Equity Income Fund
Performance |
| Timeline |
Dow Jones and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Equity Income Fund
Pair trading matchups for Equity Income
Pair Trading with Dow Jones and Equity Income
The main advantage of trading using opposite Dow Jones and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.| Dow Jones vs. Constellation Brands Class | Dow Jones vs. Keurig Dr Pepper | Dow Jones vs. Sonos Inc | Dow Jones vs. Fevertree Drinks Plc |
| Equity Income vs. Intermediate Bond Fund | Equity Income vs. Federated Government Income | Equity Income vs. Ab Global Bond | Equity Income vs. Ab Bond Inflation |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
Other Complementary Tools
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities |