Correlation Between Dow Jones and JAR
Can any of the company-specific risk be diversified away by investing in both Dow Jones and JAR 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 JAR 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 JAR, you can compare the effects of market volatilities on Dow Jones and JAR 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 JAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and JAR.
Diversification Opportunities for Dow Jones and JAR
Very poor diversification
The 3 months correlation between Dow and JAR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and JAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAR 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 JAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAR has no effect on the direction of Dow Jones i.e., Dow Jones and JAR go up and down completely randomly.
Pair Corralation between Dow Jones and JAR
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.65 times less return on investment than JAR. But when comparing it to its historical volatility, Dow Jones Industrial is 4.56 times less risky than JAR. It trades about 0.12 of its potential returns per unit of risk. JAR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.28 in JAR on August 27, 2024 and sell it today you would earn a total of 0.11 from holding JAR or generate 41.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 54.44% |
| Values | Daily Returns |
Dow Jones Industrial vs. JAR
Performance |
| Timeline |
Dow Jones and JAR Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
JAR
Pair trading matchups for JAR
Pair Trading with Dow Jones and JAR
The main advantage of trading using opposite Dow Jones and JAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, JAR 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 JAR will offset losses from the drop in JAR's long position.| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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