Correlation Between Dow Jones and Columbia Minnesota

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Can any of the company-specific risk be diversified away by investing in both Dow Jones and Columbia Minnesota 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 Columbia Minnesota 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 Columbia Minnesota Tax Exempt, you can compare the effects of market volatilities on Dow Jones and Columbia Minnesota 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 Columbia Minnesota. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Columbia Minnesota.

Diversification Opportunities for Dow Jones and Columbia Minnesota

0.22
  Correlation Coefficient

Modest diversification

The 3 months correlation between Dow and Columbia is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Columbia Minnesota Tax Exempt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Minnesota Tax 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 Columbia Minnesota. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Minnesota Tax has no effect on the direction of Dow Jones i.e., Dow Jones and Columbia Minnesota go up and down completely randomly.
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Pair Corralation between Dow Jones and Columbia Minnesota

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Columbia Minnesota. In addition to that, Dow Jones is 3.24 times more volatile than Columbia Minnesota Tax Exempt. It trades about -0.01 of its total potential returns per unit of risk. Columbia Minnesota Tax Exempt is currently generating about 0.47 per unit of volatility. If you would invest  1,963  in Columbia Minnesota Tax Exempt on September 12, 2024 and sell it today you would earn a total of  36.00  from holding Columbia Minnesota Tax Exempt or generate 1.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.45%
ValuesDaily Returns

Dow Jones Industrial  vs.  Columbia Minnesota Tax Exempt

 Performance 
       Timeline  

Dow Jones and Columbia Minnesota Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow Jones and Columbia Minnesota

The main advantage of trading using opposite Dow Jones and Columbia Minnesota positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Columbia Minnesota 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 Columbia Minnesota will offset losses from the drop in Columbia Minnesota's long position.
The idea behind Dow Jones Industrial and Columbia Minnesota Tax Exempt pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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