Correlation Between Dow Jones and FF European
Can any of the company-specific risk be diversified away by investing in both Dow Jones and FF European 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 FF European 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 FF European, you can compare the effects of market volatilities on Dow Jones and FF European 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 FF European. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and FF European.
Diversification Opportunities for Dow Jones and FF European
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and FJ2B is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and FF European in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FF European 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 FF European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FF European has no effect on the direction of Dow Jones i.e., Dow Jones and FF European go up and down completely randomly.
Pair Corralation between Dow Jones and FF European
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the FF European. In addition to that, Dow Jones is 1.13 times more volatile than FF European. It trades about -0.21 of its total potential returns per unit of risk. FF European is currently generating about -0.03 per unit of volatility. If you would invest 2,013 in FF European on October 12, 2024 and sell it today you would lose (8.00) from holding FF European or give up 0.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 85.71% |
| Values | Daily Returns |
Dow Jones Industrial vs. FF European
Performance |
| Timeline |
Dow Jones and FF European Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
FF European
Pair trading matchups for FF European
Pair Trading with Dow Jones and FF European
The main advantage of trading using opposite Dow Jones and FF European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, FF European 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 FF European will offset losses from the drop in FF European's long position.| Dow Jones vs. Toro | Dow Jones vs. Foot Locker | Dow Jones vs. Abercrombie Fitch | Dow Jones vs. 51Talk Online Education |
| FF European vs. Groupama Entreprises N | FF European vs. Renaissance Europe C | FF European vs. Superior Plus Corp | FF European vs. Origin Agritech |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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