Correlation Between Dow Jones and Growth Allocation
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Growth Allocation 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 Growth Allocation 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 Growth Allocation Index, you can compare the effects of market volatilities on Dow Jones and Growth Allocation 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 Growth Allocation. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Growth Allocation.
Diversification Opportunities for Dow Jones and Growth Allocation
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Growth is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Growth Allocation Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Growth Allocation Index 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 Growth Allocation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Growth Allocation Index has no effect on the direction of Dow Jones i.e., Dow Jones and Growth Allocation go up and down completely randomly.
Pair Corralation between Dow Jones and Growth Allocation
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.25 times more return on investment than Growth Allocation. However, Dow Jones is 1.25 times more volatile than Growth Allocation Index. It trades about 0.08 of its potential returns per unit of risk. Growth Allocation Index is currently generating about 0.1 per unit of risk. If you would invest 3,394,710 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 1,034,941 from holding Dow Jones Industrial or generate 30.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. Growth Allocation Index
Performance |
| Timeline |
Dow Jones and Growth Allocation Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Growth Allocation Index
Pair trading matchups for Growth Allocation
Pair Trading with Dow Jones and Growth Allocation
The main advantage of trading using opposite Dow Jones and Growth Allocation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Growth Allocation 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 Growth Allocation will offset losses from the drop in Growth Allocation's long position.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| Growth Allocation vs. Technology Ultrasector Profund | Growth Allocation vs. Hennessy Technology Fund | Growth Allocation vs. Towpath Technology | Growth Allocation vs. Janus Global Technology |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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