Correlation Between Dow Jones and Exchange Traded
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Exchange Traded 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 Exchange Traded 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 Exchange Traded Concepts, you can compare the effects of market volatilities on Dow Jones and Exchange Traded 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 Exchange Traded. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Exchange Traded.
Diversification Opportunities for Dow Jones and Exchange Traded
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Exchange is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Exchange Traded Concepts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Traded Concepts 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 Exchange Traded. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Traded Concepts has no effect on the direction of Dow Jones i.e., Dow Jones and Exchange Traded go up and down completely randomly.
Pair Corralation between Dow Jones and Exchange Traded
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.83 times more return on investment than Exchange Traded. However, Dow Jones is 1.83 times more volatile than Exchange Traded Concepts. It trades about 0.08 of its potential returns per unit of risk. Exchange Traded Concepts is currently generating about -0.05 per unit of risk. If you would invest 3,410,864 in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of 1,067,336 from holding Dow Jones Industrial or generate 31.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 30.91% |
| Values | Daily Returns |
Dow Jones Industrial vs. Exchange Traded Concepts
Performance |
| Timeline |
Dow Jones and Exchange Traded Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Exchange Traded Concepts
Pair trading matchups for Exchange Traded
Pair Trading with Dow Jones and Exchange Traded
The main advantage of trading using opposite Dow Jones and Exchange Traded positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Exchange Traded 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 Exchange Traded will offset losses from the drop in Exchange Traded's long position.| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
| Exchange Traded vs. Inspire Tactical Balanced | Exchange Traded vs. Strategy Shares NewfoundReSolve | Exchange Traded vs. iShares ESG Aware | Exchange Traded vs. Eaton Vance Enhanced |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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