Correlation Between Dow Jones and Real Assets
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Real Assets 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 Real Assets 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 Real Assets Portfolio, you can compare the effects of market volatilities on Dow Jones and Real Assets 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 Real Assets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Real Assets.
Diversification Opportunities for Dow Jones and Real Assets
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and REAL is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Real Assets Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Assets Portfolio 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 Real Assets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Assets Portfolio has no effect on the direction of Dow Jones i.e., Dow Jones and Real Assets go up and down completely randomly.
Pair Corralation between Dow Jones and Real Assets
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.39 times more return on investment than Real Assets. However, Dow Jones is 1.39 times more volatile than Real Assets Portfolio. It trades about 0.12 of its potential returns per unit of risk. Real Assets Portfolio is currently generating about 0.05 per unit of risk. If you would invest 3,383,361 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,107,704 from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Dow Jones Industrial vs. Real Assets Portfolio
Performance |
| Timeline |
Dow Jones and Real Assets Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Real Assets Portfolio
Pair trading matchups for Real Assets
Pair Trading with Dow Jones and Real Assets
The main advantage of trading using opposite Dow Jones and Real Assets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Real Assets 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 Real Assets will offset losses from the drop in Real Assets' 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 |
| Real Assets vs. Energy Basic Materials | Real Assets vs. Hennessy Bp Energy | Real Assets vs. Oil Gas Ultrasector | Real Assets vs. Clearbridge Energy Mlp |
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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