Correlation Between Dow Jones and IShares 10
Can any of the company-specific risk be diversified away by investing in both Dow Jones and IShares 10 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 10 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 10 Year, you can compare the effects of market volatilities on Dow Jones and IShares 10 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 10. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and IShares 10.
Diversification Opportunities for Dow Jones and IShares 10
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Dow and IShares is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and iShares 10 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 10 Year 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 10. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares 10 Year has no effect on the direction of Dow Jones i.e., Dow Jones and IShares 10 go up and down completely randomly.
Pair Corralation between Dow Jones and IShares 10
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.96 times more return on investment than IShares 10. However, Dow Jones Industrial is 1.04 times less risky than IShares 10. It trades about 0.08 of its potential returns per unit of risk. iShares 10 Year is currently generating about 0.02 per unit of risk. If you would invest 3,210,525 in Dow Jones Industrial on December 12, 2024 and sell it today you would earn a total of 932,823 from holding Dow Jones Industrial or generate 29.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. iShares 10 Year
Performance |
| Timeline |
Dow Jones and IShares 10 Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
iShares 10 Year
Pair trading matchups for IShares 10
Pair Trading with Dow Jones and IShares 10
The main advantage of trading using opposite Dow Jones and IShares 10 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, IShares 10 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 10 will offset losses from the drop in IShares 10's long position.| Dow Jones vs. GMO Internet | ||
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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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