Correlation Between Dow Jones and ETF Series
Can any of the company-specific risk be diversified away by investing in both Dow Jones and ETF Series 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 ETF Series 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 ETF Series Solutions, you can compare the effects of market volatilities on Dow Jones and ETF Series 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 ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and ETF Series.
Diversification Opportunities for Dow Jones and ETF Series
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and ETF is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions 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 ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Dow Jones i.e., Dow Jones and ETF Series go up and down completely randomly.
Pair Corralation between Dow Jones and ETF Series
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.16 times more return on investment than ETF Series. However, Dow Jones is 1.16 times more volatile than ETF Series Solutions. It trades about 0.16 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.14 per unit of risk. If you would invest 3,857,103 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 633,962 from holding Dow Jones Industrial or generate 16.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Dow Jones Industrial vs. ETF Series Solutions
Performance |
| Timeline |
Dow Jones and ETF Series Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
ETF Series Solutions
Pair trading matchups for ETF Series
Pair Trading with Dow Jones and ETF Series
The main advantage of trading using opposite Dow Jones and ETF Series positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, ETF Series 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 ETF Series will offset losses from the drop in ETF Series' long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| ETF Series vs. iShares Core SP | ETF Series vs. iShares Core MSCI | ETF Series vs. iShares Broad USD | ETF Series vs. iShares Core SP |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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