Correlation Between Dow Jones and Plan Investment
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Plan Investment 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 Plan Investment 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 Plan Investment, you can compare the effects of market volatilities on Dow Jones and Plan Investment 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 Plan Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Plan Investment.
Diversification Opportunities for Dow Jones and Plan Investment
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and Plan is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Plan Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plan Investment 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 Plan Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plan Investment has no effect on the direction of Dow Jones i.e., Dow Jones and Plan Investment go up and down completely randomly.
Pair Corralation between Dow Jones and Plan Investment
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.17 times more return on investment than Plan Investment. However, Dow Jones is 1.17 times more volatile than Plan Investment. It trades about 0.12 of its potential returns per unit of risk. Plan Investment is currently generating about 0.04 per unit of risk. If you would invest 3,383,361 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 1,107,704 from holding Dow Jones Industrial or generate 32.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.68% |
| Values | Daily Returns |
Dow Jones Industrial vs. Plan Investment
Performance |
| Timeline |
Dow Jones and Plan Investment Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Plan Investment
Pair trading matchups for Plan Investment
Pair Trading with Dow Jones and Plan Investment
The main advantage of trading using opposite Dow Jones and Plan Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Plan Investment 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 Plan Investment will offset losses from the drop in Plan Investment's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Plan Investment vs. Vanguard Total Stock | Plan Investment vs. Vanguard 500 Index | Plan Investment vs. Vanguard Total Stock | Plan Investment vs. Vanguard Total Stock |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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