Correlation Between Dow Jones and MDA
Can any of the company-specific risk be diversified away by investing in both Dow Jones and MDA 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 MDA 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 MDA, you can compare the effects of market volatilities on Dow Jones and MDA 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 MDA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and MDA.
Diversification Opportunities for Dow Jones and MDA
Average diversification
The 3 months correlation between Dow and MDA is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and MDA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDA 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 MDA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDA has no effect on the direction of Dow Jones i.e., Dow Jones and MDA go up and down completely randomly.
Pair Corralation between Dow Jones and MDA
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.06 times more return on investment than MDA. However, Dow Jones Industrial is 15.46 times less risky than MDA. It trades about 0.12 of its potential returns per unit of risk. MDA is currently generating about 0.0 per unit of risk. If you would invest 3,624,550 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 805,101 from holding Dow Jones Industrial or generate 22.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 54.44% |
| Values | Daily Returns |
Dow Jones Industrial vs. MDA
Performance |
| Timeline |
Dow Jones and MDA Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
MDA
Pair trading matchups for MDA
Pair Trading with Dow Jones and MDA
The main advantage of trading using opposite Dow Jones and MDA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, MDA 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 MDA will offset losses from the drop in MDA'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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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