Correlation Between Dow Jones and IShares Morningstar
Can any of the company-specific risk be diversified away by investing in both Dow Jones and IShares Morningstar 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 Morningstar 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 Morningstar Small Cap, you can compare the effects of market volatilities on Dow Jones and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and IShares Morningstar.
Diversification Opportunities for Dow Jones and IShares Morningstar
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and IShares is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of Dow Jones i.e., Dow Jones and IShares Morningstar go up and down completely randomly.
Pair Corralation between Dow Jones and IShares Morningstar
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.78 times less return on investment than IShares Morningstar. But when comparing it to its historical volatility, Dow Jones Industrial is 1.42 times less risky than IShares Morningstar. It trades about 0.21 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 4,899 in iShares Morningstar Small Cap on August 25, 2024 and sell it today you would earn a total of 421.00 from holding iShares Morningstar Small Cap or generate 8.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. iShares Morningstar Small Cap
Performance |
| Timeline |
Dow Jones and IShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
iShares Morningstar Small Cap
Pair trading matchups for IShares Morningstar
Pair Trading with Dow Jones and IShares Morningstar
The main advantage of trading using opposite Dow Jones and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar'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 |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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