Correlation Between Dow Jones and Largecap Value
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Largecap 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 Largecap 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 Largecap Value Fund, you can compare the effects of market volatilities on Dow Jones and Largecap 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 Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Largecap Value.
Diversification Opportunities for Dow Jones and Largecap Value
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Dow and Largecap is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap 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 Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Dow Jones i.e., Dow Jones and Largecap Value go up and down completely randomly.
Pair Corralation between Dow Jones and Largecap Value
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.22 times more return on investment than Largecap Value. However, Dow Jones is 1.22 times more volatile than Largecap Value Fund. It trades about 0.37 of its potential returns per unit of risk. Largecap Value Fund is currently generating about 0.33 per unit of risk. If you would invest 4,179,460 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 298,740 from holding Dow Jones Industrial or generate 7.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
Dow Jones Industrial vs. Largecap Value Fund
Performance |
| Timeline |
Dow Jones and Largecap Value Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Largecap Value Fund
Pair trading matchups for Largecap Value
Pair Trading with Dow Jones and Largecap Value
The main advantage of trading using opposite Dow Jones and Largecap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Largecap 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 Largecap Value will offset losses from the drop in Largecap Value's long position.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
| Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap Value vs. Strategic Asset Management | Largecap 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
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Transaction History View history of all your transactions and understand their impact on performance | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation |