Correlation Between Dow Jones and Innovator
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Innovator 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 Innovator 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 Innovator SP 500, you can compare the effects of market volatilities on Dow Jones and Innovator 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 Innovator. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Innovator.
Diversification Opportunities for Dow Jones and Innovator
Almost no diversification
The 3 months correlation between Dow and Innovator is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Innovator SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator SP 500 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 Innovator. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator SP 500 has no effect on the direction of Dow Jones i.e., Dow Jones and Innovator go up and down completely randomly.
Pair Corralation between Dow Jones and Innovator
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.7 times more return on investment than Innovator. However, Dow Jones is 1.7 times more volatile than Innovator SP 500. It trades about 0.11 of its potential returns per unit of risk. Innovator SP 500 is currently generating about 0.12 per unit of risk. If you would invest 3,428,864 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 1,044,793 from holding Dow Jones Industrial or generate 30.47% 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. Innovator SP 500
Performance |
| Timeline |
Dow Jones and Innovator Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Innovator SP 500
Pair trading matchups for Innovator
Pair Trading with Dow Jones and Innovator
The main advantage of trading using opposite Dow Jones and Innovator positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Innovator 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 Innovator will offset losses from the drop in Innovator's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 | Innovator vs. Innovator SP 500 |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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