Correlation Between Dow Jones and Equity Growth
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Equity Growth 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 Growth 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 Growth Fund, you can compare the effects of market volatilities on Dow Jones and Equity Growth 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 Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Equity Growth.
Diversification Opportunities for Dow Jones and Equity Growth
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Equity is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Equity Growth Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Dow Jones i.e., Dow Jones and Equity Growth go up and down completely randomly.
Pair Corralation between Dow Jones and Equity Growth
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.54 times less return on investment than Equity Growth. But when comparing it to its historical volatility, Dow Jones Industrial is 1.0 times less risky than Equity Growth. It trades about 0.07 of its potential returns per unit of risk. Equity Growth Fund is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 3,366 in Equity Growth Fund on September 18, 2024 and sell it today you would earn a total of 98.00 from holding Equity Growth Fund or generate 2.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Dow Jones Industrial vs. Equity Growth Fund
Performance |
| Timeline |
Dow Jones and Equity Growth Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Equity Growth Fund
Pair trading matchups for Equity Growth
Pair Trading with Dow Jones and Equity Growth
The main advantage of trading using opposite Dow Jones and Equity Growth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Equity Growth 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 Growth will offset losses from the drop in Equity Growth's long position.| Dow Jones vs. Commonwealth Bank of | Dow Jones vs. AmTrust Financial Services | Dow Jones vs. Forsys Metals Corp | Dow Jones vs. Juniata Valley Financial |
| Equity Growth vs. Mid Cap Value | Equity Growth vs. Income Growth Fund | Equity Growth vs. Diversified Bond Fund | Equity Growth vs. Emerging Markets Fund |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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