Correlation Between Dow Jones and Core Bond
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Core Bond 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 Core Bond 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 Core Bond Fund, you can compare the effects of market volatilities on Dow Jones and Core Bond 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 Core Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Core Bond.
Diversification Opportunities for Dow Jones and Core Bond
Good diversification
The 3 months correlation between Dow and Core is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Core Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Bond Fund 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 Core Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Bond Fund has no effect on the direction of Dow Jones i.e., Dow Jones and Core Bond go up and down completely randomly.
Pair Corralation between Dow Jones and Core Bond
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Core Bond. In addition to that, Dow Jones is 2.12 times more volatile than Core Bond Fund. It trades about -0.21 of its total potential returns per unit of risk. Core Bond Fund is currently generating about -0.36 per unit of volatility. If you would invest 1,103 in Core Bond Fund on September 25, 2024 and sell it today you would lose (29.00) from holding Core Bond Fund or give up 2.63% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Core Bond Fund
Performance |
| Timeline |
Dow Jones and Core Bond Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Core Bond Fund
Pair trading matchups for Core Bond
Pair Trading with Dow Jones and Core Bond
The main advantage of trading using opposite Dow Jones and Core Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Core Bond 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 Core Bond will offset losses from the drop in Core Bond's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. Lion One Metals | Dow Jones vs. Blue Moon Metals | Dow Jones vs. Xunlei Ltd Adr |
| Core Bond vs. Regional Bank Fund | Core Bond vs. Regional Bank Fund | Core Bond vs. Multimanager Lifestyle Moderate | Core Bond vs. Multimanager Lifestyle Balanced |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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