Correlation Between Dow Jones and Northern Large
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Northern Large 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 Northern Large 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 Northern Large Cap, you can compare the effects of market volatilities on Dow Jones and Northern Large 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 Northern Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Northern Large.
Diversification Opportunities for Dow Jones and Northern Large
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and NORTHERN is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Northern Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Large Cap 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 Northern Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Large Cap has no effect on the direction of Dow Jones i.e., Dow Jones and Northern Large go up and down completely randomly.
Pair Corralation between Dow Jones and Northern Large
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.54 times less return on investment than Northern Large. But when comparing it to its historical volatility, Dow Jones Industrial is 1.14 times less risky than Northern Large. It trades about 0.08 of its potential returns per unit of risk. Northern Large Cap is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,007 in Northern Large Cap on August 30, 2024 and sell it today you would earn a total of 1,134 from holding Northern Large Cap or generate 56.5% 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. Northern Large Cap
Performance |
| Timeline |
Dow Jones and Northern Large Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Northern Large Cap
Pair trading matchups for Northern Large
Pair Trading with Dow Jones and Northern Large
The main advantage of trading using opposite Dow Jones and Northern Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Northern Large 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 Northern Large will offset losses from the drop in Northern Large's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| Northern Large vs. Northern Stock Index | Northern Large vs. Northern Mid Cap | Northern Large vs. Northern Income Equity | Northern Large vs. Northern International Equity |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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