Correlation Between Dow Jones and Global Opportunity
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Global Opportunity 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 Global Opportunity 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 Global Opportunity Portfolio, you can compare the effects of market volatilities on Dow Jones and Global Opportunity 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 Global Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Global Opportunity.
Diversification Opportunities for Dow Jones and Global Opportunity
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and GLOBAL is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Global Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Opportunity 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 Global Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Opportunity has no effect on the direction of Dow Jones i.e., Dow Jones and Global Opportunity go up and down completely randomly.
Pair Corralation between Dow Jones and Global Opportunity
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.46 times more return on investment than Global Opportunity. However, Dow Jones is 1.46 times more volatile than Global Opportunity Portfolio. It trades about 0.37 of its potential returns per unit of risk. Global Opportunity Portfolio is currently generating about 0.42 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Global Opportunity Portfolio
Performance |
| Timeline |
Dow Jones and Global Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Global Opportunity Portfolio
Pair trading matchups for Global Opportunity
Pair Trading with Dow Jones and Global Opportunity
The main advantage of trading using opposite Dow Jones and Global Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Global Opportunity 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 Global Opportunity will offset losses from the drop in Global Opportunity's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Global Opportunity vs. Emerging Markets Equity | Global Opportunity vs. Global Fixed Income | Global Opportunity vs. Global Fixed Income | Global Opportunity vs. Global Fixed Income |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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