Correlation Between Dow Jones and Power Momentum
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Power Momentum 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 Power Momentum 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 Power Momentum Index, you can compare the effects of market volatilities on Dow Jones and Power Momentum 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 Power Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Power Momentum.
Diversification Opportunities for Dow Jones and Power Momentum
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Power is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Power Momentum Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Momentum Index 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 Power Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Momentum Index has no effect on the direction of Dow Jones i.e., Dow Jones and Power Momentum go up and down completely randomly.
Pair Corralation between Dow Jones and Power Momentum
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.33 times less return on investment than Power Momentum. But when comparing it to its historical volatility, Dow Jones Industrial is 1.45 times less risky than Power Momentum. It trades about 0.12 of its potential returns per unit of risk. Power Momentum Index is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,040 in Power Momentum Index on August 31, 2024 and sell it today you would earn a total of 463.00 from holding Power Momentum Index or generate 44.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Dow Jones Industrial vs. Power Momentum Index
Performance |
| Timeline |
Dow Jones and Power Momentum Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Power Momentum Index
Pair trading matchups for Power Momentum
Pair Trading with Dow Jones and Power Momentum
The main advantage of trading using opposite Dow Jones and Power Momentum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Power Momentum 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 Power Momentum will offset losses from the drop in Power Momentum's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Power Momentum vs. Ab Small Cap | Power Momentum vs. The Hartford Small | Power Momentum vs. Heartland Value Plus | Power Momentum vs. Artisan Small Cap |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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