Correlation Between Dow Jones and SPDR Barclays
Can any of the company-specific risk be diversified away by investing in both Dow Jones and SPDR Barclays 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 SPDR Barclays 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 SPDR Barclays Euro, you can compare the effects of market volatilities on Dow Jones and SPDR Barclays 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 SPDR Barclays. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and SPDR Barclays.
Diversification Opportunities for Dow Jones and SPDR Barclays
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and SPDR is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and SPDR Barclays Euro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays Euro 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 SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays Euro has no effect on the direction of Dow Jones i.e., Dow Jones and SPDR Barclays go up and down completely randomly.
Pair Corralation between Dow Jones and SPDR Barclays
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 5.33 times more return on investment than SPDR Barclays. However, Dow Jones is 5.33 times more volatile than SPDR Barclays Euro. It trades about 0.15 of its potential returns per unit of risk. SPDR Barclays Euro is currently generating about 0.06 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. SPDR Barclays Euro
Performance |
| Timeline |
Dow Jones and SPDR Barclays Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
SPDR Barclays Euro
Pair trading matchups for SPDR Barclays
Pair Trading with Dow Jones and SPDR Barclays
The main advantage of trading using opposite Dow Jones and SPDR Barclays positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, SPDR Barclays 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 SPDR Barclays will offset losses from the drop in SPDR Barclays' long position.| Dow Jones vs. Barrick Gold Corp | Dow Jones vs. Jutal Offshore Oil | Dow Jones vs. Eastern Co | Dow Jones vs. Weyco Group |
| SPDR Barclays vs. Amundi ETF Govies | SPDR Barclays vs. iShares STOXX Europe | SPDR Barclays vs. iShares Global Infrastructure | SPDR Barclays vs. SPDR MSCI World |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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