Correlation Between Dow Jones and MSCI
Can any of the company-specific risk be diversified away by investing in both Dow Jones and MSCI 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 MSCI 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 MSCI Inc, you can compare the effects of market volatilities on Dow Jones and MSCI 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 MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and MSCI.
Diversification Opportunities for Dow Jones and MSCI
Poor diversification
The 3 months correlation between Dow and MSCI is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of Dow Jones i.e., Dow Jones and MSCI go up and down completely randomly.
Pair Corralation between Dow Jones and MSCI
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.05 times less return on investment than MSCI. But when comparing it to its historical volatility, Dow Jones Industrial is 2.45 times less risky than MSCI. It trades about 0.12 of its potential returns per unit of risk. MSCI Inc is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 47,283 in MSCI Inc on August 31, 2024 and sell it today you would earn a total of 13,680 from holding MSCI Inc or generate 28.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. MSCI Inc
Performance |
| Timeline |
Dow Jones and MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
MSCI Inc
Pair trading matchups for MSCI
Pair Trading with Dow Jones and MSCI
The main advantage of trading using opposite Dow Jones and MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, MSCI 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 MSCI will offset losses from the drop in MSCI'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 |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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