Correlation Between Dow Jones and Vanguard Intermediate
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Intermediate 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 Vanguard Intermediate 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 Vanguard Intermediate Term Bond, you can compare the effects of market volatilities on Dow Jones and Vanguard Intermediate 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 Vanguard Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Intermediate.
Diversification Opportunities for Dow Jones and Vanguard Intermediate
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Vanguard is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard Intermediate Term Bon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Intermediate 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 Vanguard Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Intermediate has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Intermediate go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Intermediate
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.22 times more return on investment than Vanguard Intermediate. However, Dow Jones is 2.22 times more volatile than Vanguard Intermediate Term Bond. It trades about 0.33 of its potential returns per unit of risk. Vanguard Intermediate Term Bond is currently generating about 0.24 per unit of risk. If you would invest 4,263,520 in Dow Jones Industrial on November 9, 2024 and sell it today you would earn a total of 211,243 from holding Dow Jones Industrial or generate 4.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard Intermediate Term Bon
Performance |
| Timeline |
Dow Jones and Vanguard Intermediate Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Intermediate Term Bond
Pair trading matchups for Vanguard Intermediate
Pair Trading with Dow Jones and Vanguard Intermediate
The main advantage of trading using opposite Dow Jones and Vanguard Intermediate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Intermediate 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 Vanguard Intermediate will offset losses from the drop in Vanguard Intermediate's long position.| Dow Jones vs. Douglas Emmett | Dow Jones vs. Todos Medical | Dow Jones vs. Eastern Co | Dow Jones vs. Merit Medical Systems |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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