Correlation Between Dow Jones and New World
Can any of the company-specific risk be diversified away by investing in both Dow Jones and New World 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 New World 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 New World Fund, you can compare the effects of market volatilities on Dow Jones and New World 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 New World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and New World.
Diversification Opportunities for Dow Jones and New World
Significant diversification
The 3 months correlation between Dow and New is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and New World Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Fund 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 New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Fund has no effect on the direction of Dow Jones i.e., Dow Jones and New World go up and down completely randomly.
Pair Corralation between Dow Jones and New World
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.54 times more return on investment than New World. However, Dow Jones is 1.54 times more volatile than New World Fund. It trades about 0.37 of its potential returns per unit of risk. New World Fund is currently generating about -0.1 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 | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. New World Fund
Performance |
| Timeline |
Dow Jones and New World Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
New World Fund
Pair trading matchups for New World
Pair Trading with Dow Jones and New World
The main advantage of trading using opposite Dow Jones and New World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, New World 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 New World will offset losses from the drop in New World's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| New World vs. Smallcap World Fund | New World vs. Capital World Growth | New World vs. American Funds Fundamental | New World vs. Capital Income Builder |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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