Correlation Between Dow Jones and US Treasury
Can any of the company-specific risk be diversified away by investing in both Dow Jones and US Treasury 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 US Treasury 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 US Treasury 12, you can compare the effects of market volatilities on Dow Jones and US Treasury 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 US Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and US Treasury.
Diversification Opportunities for Dow Jones and US Treasury
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and OBIL is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and US Treasury 12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Treasury 12 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 US Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Treasury 12 has no effect on the direction of Dow Jones i.e., Dow Jones and US Treasury go up and down completely randomly.
Pair Corralation between Dow Jones and US Treasury
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 31.55 times more return on investment than US Treasury. However, Dow Jones is 31.55 times more volatile than US Treasury 12. It trades about 0.15 of its potential returns per unit of risk. US Treasury 12 is currently generating about 0.33 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% 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. US Treasury 12
Performance |
| Timeline |
Dow Jones and US Treasury Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
US Treasury 12
Pair trading matchups for US Treasury
Pair Trading with Dow Jones and US Treasury
The main advantage of trading using opposite Dow Jones and US Treasury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, US Treasury 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 US Treasury will offset losses from the drop in US Treasury's long position.| Dow Jones vs. Barrick Gold Corp | Dow Jones vs. Jutal Offshore Oil | Dow Jones vs. Eastern Co | Dow Jones vs. Weyco Group |
| US Treasury vs. FlexShares Ready Access | US Treasury vs. Franklin Liberty Investment | US Treasury vs. PIMCO Enhanced Low | US Treasury vs. SPDR SSgA Ultra |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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