Correlation Between Dow Jones and The Merger
Can any of the company-specific risk be diversified away by investing in both Dow Jones and The Merger 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 The Merger 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 The Merger Fund, you can compare the effects of market volatilities on Dow Jones and The Merger 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 The Merger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and The Merger.
Diversification Opportunities for Dow Jones and The Merger
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and The is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and The Merger Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merger 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 The Merger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merger Fund has no effect on the direction of Dow Jones i.e., Dow Jones and The Merger go up and down completely randomly.
Pair Corralation between Dow Jones and The Merger
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 4.66 times more return on investment than The Merger. However, Dow Jones is 4.66 times more volatile than The Merger Fund. It trades about 0.1 of its potential returns per unit of risk. The Merger Fund is currently generating about 0.07 per unit of risk. If you would invest 3,768,954 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 660,697 from holding Dow Jones Industrial or generate 17.53% 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. The Merger Fund
Performance |
| Timeline |
Dow Jones and The Merger Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
The Merger Fund
Pair trading matchups for The Merger
Pair Trading with Dow Jones and The Merger
The main advantage of trading using opposite Dow Jones and The Merger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, The Merger 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 The Merger will offset losses from the drop in The Merger'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 |
| The Merger vs. Strategic Advisers International | The Merger vs. Strategic Advisers Income | The Merger vs. Aquagold International | The Merger vs. Morningstar Unconstrained Allocation |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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