Correlation Between Dow Jones and Eafe Fund
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Eafe Fund 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 Eafe Fund 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 The Eafe Fund, you can compare the effects of market volatilities on Dow Jones and Eafe Fund 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 Eafe Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Eafe Fund.
Diversification Opportunities for Dow Jones and Eafe Fund
Very weak diversification
The 3 months correlation between Dow and Eafe is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund 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 Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of Dow Jones i.e., Dow Jones and Eafe Fund go up and down completely randomly.
Pair Corralation between Dow Jones and Eafe Fund
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.58 times more return on investment than Eafe Fund. However, Dow Jones Industrial is 1.73 times less risky than Eafe Fund. It trades about 0.12 of its potential returns per unit of risk. The Eafe Fund is currently generating about 0.04 per unit of risk. If you would invest 3,383,361 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,107,704 from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Dow Jones Industrial vs. The Eafe Fund
Performance |
| Timeline |
Dow Jones and Eafe Fund Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
The Eafe Fund
Pair trading matchups for Eafe Fund
Pair Trading with Dow Jones and Eafe Fund
The main advantage of trading using opposite Dow Jones and Eafe Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Eafe Fund 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 Eafe Fund will offset losses from the drop in Eafe Fund's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
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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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