Correlation Between Dow Jones and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Smallcap Value 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 Smallcap Value 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 Smallcap Value Fund, you can compare the effects of market volatilities on Dow Jones and Smallcap Value 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 Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Smallcap Value.
Diversification Opportunities for Dow Jones and Smallcap Value
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Smallcap is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value 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 Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of Dow Jones i.e., Dow Jones and Smallcap Value go up and down completely randomly.
Pair Corralation between Dow Jones and Smallcap Value
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.45 times less return on investment than Smallcap Value. But when comparing it to its historical volatility, Dow Jones Industrial is 1.77 times less risky than Smallcap Value. It trades about 0.34 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 1,177 in Smallcap Value Fund on September 2, 2024 and sell it today you would earn a total of 116.00 from holding Smallcap Value Fund or generate 9.86% 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. Smallcap Value Fund
Performance |
| Timeline |
Dow Jones and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Smallcap Value Fund
Pair trading matchups for Smallcap Value
Pair Trading with Dow Jones and Smallcap Value
The main advantage of trading using opposite Dow Jones and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management |
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.
Other Complementary Tools
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Insider Screener Find insiders across different sectors to evaluate their impact on performance | |
| Content Syndication Quickly integrate customizable finance content to your own investment portal | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon |