Correlation Between Dow Jones and Inflation Protection
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Inflation Protection 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 Inflation Protection 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 Inflation Protection Fund, you can compare the effects of market volatilities on Dow Jones and Inflation Protection 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 Inflation Protection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Inflation Protection.
Diversification Opportunities for Dow Jones and Inflation Protection
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Inflation is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection 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 Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Dow Jones i.e., Dow Jones and Inflation Protection go up and down completely randomly.
Pair Corralation between Dow Jones and Inflation Protection
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.95 times more return on investment than Inflation Protection. However, Dow Jones is 1.95 times more volatile than Inflation Protection Fund. It trades about 0.11 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about 0.03 per unit of risk. If you would invest 3,406,633 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 1,071,567 from holding Dow Jones Industrial or generate 31.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.73% |
| Values | Daily Returns |
Dow Jones Industrial vs. Inflation Protection Fund
Performance |
| Timeline |
Dow Jones and Inflation Protection Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Inflation Protection Fund
Pair trading matchups for Inflation Protection
Pair Trading with Dow Jones and Inflation Protection
The main advantage of trading using opposite Dow Jones and Inflation Protection positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Inflation Protection 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 Inflation Protection will offset losses from the drop in Inflation Protection's long position.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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