Correlation Between Dow Jones and Assured Guaranty
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Assured Guaranty 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 Assured Guaranty 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 Assured Guaranty, you can compare the effects of market volatilities on Dow Jones and Assured Guaranty 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 Assured Guaranty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Assured Guaranty.
Diversification Opportunities for Dow Jones and Assured Guaranty
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Assured is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Assured Guaranty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Assured Guaranty 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 Assured Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Assured Guaranty has no effect on the direction of Dow Jones i.e., Dow Jones and Assured Guaranty go up and down completely randomly.
Pair Corralation between Dow Jones and Assured Guaranty
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.19 times less return on investment than Assured Guaranty. But when comparing it to its historical volatility, Dow Jones Industrial is 2.22 times less risky than Assured Guaranty. It trades about 0.11 of its potential returns per unit of risk. Assured Guaranty is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 5,399 in Assured Guaranty on August 28, 2024 and sell it today you would earn a total of 4,070 from holding Assured Guaranty or generate 75.38% 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. Assured Guaranty
Performance |
| Timeline |
Dow Jones and Assured Guaranty Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Assured Guaranty
Pair trading matchups for Assured Guaranty
Pair Trading with Dow Jones and Assured Guaranty
The main advantage of trading using opposite Dow Jones and Assured Guaranty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Assured Guaranty 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 Assured Guaranty will offset losses from the drop in Assured Guaranty's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Assured Guaranty vs. AXIS Capital Holdings | Assured Guaranty vs. MBIA Inc | Assured Guaranty vs. Assurant | Assured Guaranty vs. American Financial Group |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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