Correlation Between Dow Jones and First Trust
Can any of the company-specific risk be diversified away by investing in both Dow Jones and First Trust 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 First Trust 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 First Trust Developed, you can compare the effects of market volatilities on Dow Jones and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and First Trust.
Diversification Opportunities for Dow Jones and First Trust
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and First is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and First Trust Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Developed 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Developed has no effect on the direction of Dow Jones i.e., Dow Jones and First Trust go up and down completely randomly.
Pair Corralation between Dow Jones and First Trust
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.59 times more return on investment than First Trust. However, Dow Jones Industrial is 1.7 times less risky than First Trust. It trades about 0.12 of its potential returns per unit of risk. First Trust Developed is currently generating about 0.04 per unit of risk. If you would invest 3,383,361 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,107,704 from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.19% |
| Values | Daily Returns |
Dow Jones Industrial vs. First Trust Developed
Performance |
| Timeline |
Dow Jones and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
First Trust Developed
Pair trading matchups for First Trust
Pair Trading with Dow Jones and First Trust
The main advantage of trading using opposite Dow Jones and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| First Trust vs. Schwab Fundamental International | First Trust vs. Schwab Fundamental Emerging | First Trust vs. Schwab Fundamental Small | First Trust vs. Schwab Fundamental Large |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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