Correlation Between Dow Jones and MBIA
Can any of the company-specific risk be diversified away by investing in both Dow Jones and MBIA 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 MBIA 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 MBIA Inc, you can compare the effects of market volatilities on Dow Jones and MBIA 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 MBIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and MBIA.
Diversification Opportunities for Dow Jones and MBIA
Poor diversification
The 3 months correlation between Dow and MBIA is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and MBIA Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MBIA Inc 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 MBIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MBIA Inc has no effect on the direction of Dow Jones i.e., Dow Jones and MBIA go up and down completely randomly.
Pair Corralation between Dow Jones and MBIA
Assuming the 90 days trading horizon Dow Jones is expected to generate 11.6 times less return on investment than MBIA. But when comparing it to its historical volatility, Dow Jones Industrial is 5.74 times less risky than MBIA. It trades about 0.26 of its potential returns per unit of risk. MBIA Inc is currently generating about 0.53 of returns per unit of risk over similar time horizon. If you would invest 378.00 in MBIA Inc on August 27, 2024 and sell it today you would earn a total of 310.00 from holding MBIA Inc or generate 82.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. MBIA Inc
Performance |
| Timeline |
Dow Jones and MBIA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
MBIA Inc
Pair trading matchups for MBIA
Pair Trading with Dow Jones and MBIA
The main advantage of trading using opposite Dow Jones and MBIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, MBIA 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 MBIA will offset losses from the drop in MBIA's long position.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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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