Correlation Between Dow Jones and Jensen Quality
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Jensen Quality 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 Jensen Quality 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 Jensen Quality Value, you can compare the effects of market volatilities on Dow Jones and Jensen Quality 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 Jensen Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Jensen Quality.
Diversification Opportunities for Dow Jones and Jensen Quality
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Dow and Jensen is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Jensen Quality Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jensen Quality Value 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 Jensen Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jensen Quality Value has no effect on the direction of Dow Jones i.e., Dow Jones and Jensen Quality go up and down completely randomly.
Pair Corralation between Dow Jones and Jensen Quality
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.8 times more return on investment than Jensen Quality. However, Dow Jones Industrial is 1.25 times less risky than Jensen Quality. It trades about 0.08 of its potential returns per unit of risk. Jensen Quality Value is currently generating about 0.05 per unit of risk. If you would invest 3,394,710 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 1,034,941 from holding Dow Jones Industrial or generate 30.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Jensen Quality Value
Performance |
| Timeline |
Dow Jones and Jensen Quality Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Jensen Quality Value
Pair trading matchups for Jensen Quality
Pair Trading with Dow Jones and Jensen Quality
The main advantage of trading using opposite Dow Jones and Jensen Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Jensen Quality 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 Jensen Quality will offset losses from the drop in Jensen Quality'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 |
| Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio | Jensen Quality vs. The Jensen Portfolio |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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