Correlation Between Dow Jones and Ultra Short
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Ultra Short 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 Ultra Short 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 Ultra Short Income, you can compare the effects of market volatilities on Dow Jones and Ultra Short 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 Ultra Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Ultra Short.
Diversification Opportunities for Dow Jones and Ultra Short
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Ultra is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Ultra Short Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Income 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 Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Income has no effect on the direction of Dow Jones i.e., Dow Jones and Ultra Short go up and down completely randomly.
Pair Corralation between Dow Jones and Ultra Short
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 6.86 times more return on investment than Ultra Short. However, Dow Jones is 6.86 times more volatile than Ultra Short Income. It trades about 0.08 of its potential returns per unit of risk. Ultra Short Income is currently generating about 0.23 per unit of risk. If you would invest 3,320,393 in Dow Jones Industrial on September 13, 2024 and sell it today you would earn a total of 1,094,463 from holding Dow Jones Industrial or generate 32.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Ultra Short Income
Performance |
| Timeline |
Dow Jones and Ultra Short Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Ultra Short Income
Pair trading matchups for Ultra Short
Pair Trading with Dow Jones and Ultra Short
The main advantage of trading using opposite Dow Jones and Ultra Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Ultra Short 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 Ultra Short will offset losses from the drop in Ultra Short's long position.| Dow Jones vs. ChampionX | Dow Jones vs. Highway Holdings Limited | Dow Jones vs. Westinghouse Air Brake | Dow Jones vs. Cementos Pacasmayo SAA |
| Ultra Short vs. Emerging Markets Equity | Ultra Short vs. Global Fixed Income | Ultra Short vs. Global Fixed Income | Ultra Short 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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