Correlation Between Dow Jones and SPDR MSCI
Can any of the company-specific risk be diversified away by investing in both Dow Jones and SPDR MSCI 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 SPDR MSCI 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 SPDR MSCI World, you can compare the effects of market volatilities on Dow Jones and SPDR MSCI 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 SPDR MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and SPDR MSCI.
Diversification Opportunities for Dow Jones and SPDR MSCI
Poor diversification
The 3 months correlation between Dow and SPDR is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and SPDR MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI World 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 SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI World has no effect on the direction of Dow Jones i.e., Dow Jones and SPDR MSCI go up and down completely randomly.
Pair Corralation between Dow Jones and SPDR MSCI
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.8 times more return on investment than SPDR MSCI. However, Dow Jones is 1.8 times more volatile than SPDR MSCI World. It trades about 0.26 of its potential returns per unit of risk. SPDR MSCI World is currently generating about 0.08 per unit of risk. If you would invest 4,238,757 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 247,274 from holding Dow Jones Industrial or generate 5.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. SPDR MSCI World
Performance |
| Timeline |
Dow Jones and SPDR MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
SPDR MSCI World
Pair trading matchups for SPDR MSCI
Pair Trading with Dow Jones and SPDR MSCI
The main advantage of trading using opposite Dow Jones and SPDR MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, SPDR MSCI 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 SPDR MSCI will offset losses from the drop in SPDR MSCI's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| SPDR MSCI vs. SPDR MSCI EAFE | SPDR MSCI vs. SPDR MSCI Emerging | SPDR MSCI vs. SPDR MSCI USA | SPDR MSCI vs. SPDR SP 1500 |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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