Correlation Between Dow Jones and Western Asset
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Western Asset 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 Western Asset 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 Western Asset Municipal, you can compare the effects of market volatilities on Dow Jones and Western Asset 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 Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Western Asset.
Diversification Opportunities for Dow Jones and Western Asset
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Dow and Western is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Western Asset Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Municipal 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Municipal has no effect on the direction of Dow Jones i.e., Dow Jones and Western Asset go up and down completely randomly.
Pair Corralation between Dow Jones and Western Asset
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.54 times more return on investment than Western Asset. However, Dow Jones is 1.54 times more volatile than Western Asset Municipal. It trades about 0.12 of its potential returns per unit of risk. Western Asset Municipal is currently generating about 0.11 per unit of risk. If you would invest 3,387,678 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 1,103,387 from holding Dow Jones Industrial or generate 32.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 8.33% |
| Values | Daily Returns |
Dow Jones Industrial vs. Western Asset Municipal
Performance |
| Timeline |
Dow Jones and Western Asset Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Western Asset Municipal
Pair trading matchups for Western Asset
Pair Trading with Dow Jones and Western Asset
The main advantage of trading using opposite Dow Jones and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Western Asset vs. Eagle Point Income | Western Asset vs. Nuveen New York | Western Asset vs. MFS High Income | Western Asset vs. MFS High Yield |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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