Correlation Between Dow Jones and Essential
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Essential 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 Essential 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 Essential 40 Stock, you can compare the effects of market volatilities on Dow Jones and Essential 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 Essential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Essential.
Diversification Opportunities for Dow Jones and Essential
Good diversification
The 3 months correlation between Dow and Essential is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Essential 40 Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential 40 Stock 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 Essential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential 40 Stock has no effect on the direction of Dow Jones i.e., Dow Jones and Essential go up and down completely randomly.
Pair Corralation between Dow Jones and Essential
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.42 times more return on investment than Essential. However, Dow Jones is 1.42 times more volatile than Essential 40 Stock. It trades about 0.27 of its potential returns per unit of risk. Essential 40 Stock is currently generating about 0.24 per unit of risk. If you would invest 4,223,305 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 248,901 from holding Dow Jones Industrial or generate 5.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Essential 40 Stock
Performance |
| Timeline |
Dow Jones and Essential Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Essential 40 Stock
Pair trading matchups for Essential
Pair Trading with Dow Jones and Essential
The main advantage of trading using opposite Dow Jones and Essential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Essential 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 Essential will offset losses from the drop in Essential's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Essential vs. Vanguard Total Stock | Essential vs. SPDR SP 500 | Essential vs. iShares Core SP | Essential vs. Vanguard Total Bond |
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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