Correlation Between Dow Jones and JP Morgan
Can any of the company-specific risk be diversified away by investing in both Dow Jones and JP Morgan 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 JP Morgan 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 JP Morgan Exchange Traded, you can compare the effects of market volatilities on Dow Jones and JP Morgan 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 JP Morgan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and JP Morgan.
Diversification Opportunities for Dow Jones and JP Morgan
Very weak diversification
The 3 months correlation between Dow and JPIE is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and JP Morgan Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JP Morgan Exchange 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 JP Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JP Morgan Exchange has no effect on the direction of Dow Jones i.e., Dow Jones and JP Morgan go up and down completely randomly.
Pair Corralation between Dow Jones and JP Morgan
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 3.25 times more return on investment than JP Morgan. However, Dow Jones is 3.25 times more volatile than JP Morgan Exchange Traded. It trades about 0.08 of its potential returns per unit of risk. JP Morgan Exchange Traded is currently generating about 0.11 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 | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. JP Morgan Exchange Traded
Performance |
| Timeline |
Dow Jones and JP Morgan Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
JP Morgan Exchange Traded
Pair trading matchups for JP Morgan
Pair Trading with Dow Jones and JP Morgan
The main advantage of trading using opposite Dow Jones and JP Morgan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, JP Morgan 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 JP Morgan will offset losses from the drop in JP Morgan'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 |
| JP Morgan vs. JPMorgan Core Plus | JP Morgan vs. JPMorgan International Bond | JP Morgan vs. JPMorgan Ultra Short Income | JP Morgan vs. JPMorgan Short Duration |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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