Correlation Between Dow Jones and Real Return
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Real Return 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 Real Return 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 Real Return Fund, you can compare the effects of market volatilities on Dow Jones and Real Return 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 Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Real Return.
Diversification Opportunities for Dow Jones and Real Return
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Real is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Real Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Fund 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 Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Fund has no effect on the direction of Dow Jones i.e., Dow Jones and Real Return go up and down completely randomly.
Pair Corralation between Dow Jones and Real Return
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.04 times more return on investment than Real Return. However, Dow Jones is 2.04 times more volatile than Real Return Fund. It trades about 0.11 of its potential returns per unit of risk. Real Return Fund is currently generating about 0.07 per unit of risk. If you would invest 3,446,369 in Dow Jones Industrial on September 12, 2024 and sell it today you would earn a total of 978,414 from holding Dow Jones Industrial or generate 28.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Real Return Fund
Performance |
| Timeline |
Dow Jones and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Real Return Fund
Pair trading matchups for Real Return
Pair Trading with Dow Jones and Real Return
The main advantage of trading using opposite Dow Jones and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Real Return 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 Real Return will offset losses from the drop in Real Return's long position.| Dow Jones vs. Aeye Inc | Dow Jones vs. Gentex | Dow Jones vs. Marine Products | Dow Jones vs. CarsalesCom Ltd ADR |
| Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. Vanguard Inflation Protected Securities | Real Return vs. American Funds Inflation | Real Return vs. American Funds Inflation |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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