Correlation Between Dow Jones and Consumer Staples
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Consumer Staples 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 Consumer Staples 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 Consumer Staples Portfolio, you can compare the effects of market volatilities on Dow Jones and Consumer Staples 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 Consumer Staples. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Consumer Staples.
Diversification Opportunities for Dow Jones and Consumer Staples
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Consumer is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Consumer Staples Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Staples Por 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 Consumer Staples. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Staples Por has no effect on the direction of Dow Jones i.e., Dow Jones and Consumer Staples go up and down completely randomly.
Pair Corralation between Dow Jones and Consumer Staples
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.01 times more return on investment than Consumer Staples. However, Dow Jones is 1.01 times more volatile than Consumer Staples Portfolio. It trades about 0.08 of its potential returns per unit of risk. Consumer Staples Portfolio is currently generating about 0.02 per unit of risk. If you would invest 3,378,148 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,107,883 from holding Dow Jones Industrial or generate 32.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Consumer Staples Portfolio
Performance |
| Timeline |
Dow Jones and Consumer Staples Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Consumer Staples Portfolio
Pair trading matchups for Consumer Staples
Pair Trading with Dow Jones and Consumer Staples
The main advantage of trading using opposite Dow Jones and Consumer Staples positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Consumer Staples 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 Consumer Staples will offset losses from the drop in Consumer Staples' long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Consumer Staples vs. Kellanova | Consumer Staples vs. Bunge Limited | Consumer Staples vs. BJs Wholesale Club | Consumer Staples vs. Colgate Palmolive |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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