Correlation Between Dow Jones and Small Company
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Small Company 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 Small Company 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 Small Pany Value, you can compare the effects of market volatilities on Dow Jones and Small Company 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 Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Small Company.
Diversification Opportunities for Dow Jones and Small Company
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Small is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Small Pany Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Value 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Value has no effect on the direction of Dow Jones i.e., Dow Jones and Small Company go up and down completely randomly.
Pair Corralation between Dow Jones and Small Company
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.34 times less return on investment than Small Company. But when comparing it to its historical volatility, Dow Jones Industrial is 1.75 times less risky than Small Company. It trades about 0.17 of its potential returns per unit of risk. Small Pany Value is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 2,777 in Small Pany Value on August 29, 2024 and sell it today you would earn a total of 218.00 from holding Small Pany Value or generate 7.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Small Pany Value
Performance |
| Timeline |
Dow Jones and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Small Pany Value
Pair trading matchups for Small Company
Pair Trading with Dow Jones and Small Company
The main advantage of trading using opposite Dow Jones and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Small Company 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 Small Company will offset losses from the drop in Small Company's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Small Company vs. Small Pany Growth | Small Company vs. Large Pany Value | Small Company vs. Wilshire Large | Small Company vs. Small Pany Value |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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