Correlation Between Dow Jones and American Balanced
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Balanced 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 Balanced 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 Balanced Fund, you can compare the effects of market volatilities on Dow Jones and American Balanced 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 Balanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Balanced.
Diversification Opportunities for Dow Jones and American Balanced
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and American is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Balanced Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American 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 Balanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Balanced has no effect on the direction of Dow Jones i.e., Dow Jones and American Balanced go up and down completely randomly.
Pair Corralation between Dow Jones and American Balanced
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.85 times more return on investment than American Balanced. However, Dow Jones is 1.85 times more volatile than American Balanced Fund. It trades about 0.14 of its potential returns per unit of risk. American Balanced Fund is currently generating about 0.03 per unit of risk. If you would invest 4,220,822 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 208,829 from holding Dow Jones Industrial or generate 4.95% 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 Balanced Fund
Performance |
| Timeline |
Dow Jones and American Balanced Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Balanced Fund
Pair trading matchups for American Balanced
Pair Trading with Dow Jones and American Balanced
The main advantage of trading using opposite Dow Jones and American Balanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Balanced 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 Balanced will offset losses from the drop in American Balanced's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| American Balanced vs. Income Fund Of | American Balanced vs. Capital Income Builder | American Balanced vs. Capital World Growth | American Balanced vs. Growth Fund Of |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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