Correlation Between Dow Jones and Capital World
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Capital World 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 Capital World 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 Capital World Bond, you can compare the effects of market volatilities on Dow Jones and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Capital World.
Diversification Opportunities for Dow Jones and Capital World
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dow and Capital is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Dow Jones i.e., Dow Jones and Capital World go up and down completely randomly.
Pair Corralation between Dow Jones and Capital World
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.69 times more return on investment than Capital World. However, Dow Jones is 1.69 times more volatile than Capital World Bond. It trades about 0.11 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.03 per unit of risk. If you would invest 3,428,864 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 1,044,793 from holding Dow Jones Industrial or generate 30.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Capital World Bond
Performance |
| Timeline |
Dow Jones and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Capital World Bond
Pair trading matchups for Capital World
Pair Trading with Dow Jones and Capital World
The main advantage of trading using opposite Dow Jones and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Capital World vs. International Investors Gold | Capital World vs. Fidelity Advisor Gold | Capital World vs. Great West Goldman Sachs | Capital World vs. Oppenheimer Gold Special |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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