Correlation Between Dow Jones and IShares IBoxx
Can any of the company-specific risk be diversified away by investing in both Dow Jones and IShares IBoxx 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 IShares IBoxx 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 iShares iBoxx High, you can compare the effects of market volatilities on Dow Jones and IShares IBoxx 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 IShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and IShares IBoxx.
Diversification Opportunities for Dow Jones and IShares IBoxx
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and iShares iBoxx High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares iBoxx High 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 IShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares iBoxx High has no effect on the direction of Dow Jones i.e., Dow Jones and IShares IBoxx go up and down completely randomly.
Pair Corralation between Dow Jones and IShares IBoxx
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 3.6 times more return on investment than IShares IBoxx. However, Dow Jones is 3.6 times more volatile than iShares iBoxx High. It trades about 0.19 of its potential returns per unit of risk. iShares iBoxx High is currently generating about 0.19 per unit of risk. If you would invest 4,093,693 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 378,513 from holding Dow Jones Industrial or generate 9.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. iShares iBoxx High
Performance |
| Timeline |
Dow Jones and IShares IBoxx Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
iShares iBoxx High
Pair trading matchups for IShares IBoxx
Pair Trading with Dow Jones and IShares IBoxx
The main advantage of trading using opposite Dow Jones and IShares IBoxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, IShares IBoxx 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 IShares IBoxx will offset losses from the drop in IShares IBoxx'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 |
| IShares IBoxx vs. iShares iBoxx Investment | IShares IBoxx vs. SPDR Bloomberg High | IShares IBoxx vs. iShares TIPS Bond | IShares IBoxx vs. iShares 20 Year |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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