Correlation Between Dow Jones and Financial
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Financial 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 Financial 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 Financial 15 Split, you can compare the effects of market volatilities on Dow Jones and Financial 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 Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Financial.
Diversification Opportunities for Dow Jones and Financial
Poor diversification
The 3 months correlation between Dow and Financial is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Financial 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial 15 Split 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 Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial 15 Split has no effect on the direction of Dow Jones i.e., Dow Jones and Financial go up and down completely randomly.
Pair Corralation between Dow Jones and Financial
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.52 times less return on investment than Financial. But when comparing it to its historical volatility, Dow Jones Industrial is 4.31 times less risky than Financial. It trades about 0.12 of its potential returns per unit of risk. Financial 15 Split is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 471.00 in Financial 15 Split on August 26, 2024 and sell it today you would earn a total of 236.00 from holding Financial 15 Split or generate 50.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 63.05% |
| Values | Daily Returns |
Dow Jones Industrial vs. Financial 15 Split
Performance |
| Timeline |
Dow Jones and Financial Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Financial 15 Split
Pair trading matchups for Financial
Pair Trading with Dow Jones and Financial
The main advantage of trading using opposite Dow Jones and Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Financial 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 Financial will offset losses from the drop in Financial's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Financial vs. Invesco High Income | Financial vs. Blackrock Muniholdings Ny | Financial vs. MFS Investment Grade | Financial vs. Federated Premier Municipal |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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