Correlation Between Dow Jones and Tax-exempt Bond
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Tax-exempt Bond 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 Tax-exempt Bond 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 Tax Exempt Bond Fund, you can compare the effects of market volatilities on Dow Jones and Tax-exempt Bond 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 Tax-exempt Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Tax-exempt Bond.
Diversification Opportunities for Dow Jones and Tax-exempt Bond
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and Tax-exempt is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Tax Exempt Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Tax-exempt Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Dow Jones i.e., Dow Jones and Tax-exempt Bond go up and down completely randomly.
Pair Corralation between Dow Jones and Tax-exempt Bond
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 4.42 times more return on investment than Tax-exempt Bond. However, Dow Jones is 4.42 times more volatile than Tax Exempt Bond Fund. It trades about 0.37 of its potential returns per unit of risk. Tax Exempt Bond Fund is currently generating about 0.28 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Tax Exempt Bond Fund
Performance |
| Timeline |
Dow Jones and Tax-exempt Bond Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Tax Exempt Bond Fund
Pair trading matchups for Tax-exempt Bond
Pair Trading with Dow Jones and Tax-exempt Bond
The main advantage of trading using opposite Dow Jones and Tax-exempt Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Tax-exempt Bond 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 Tax-exempt Bond will offset losses from the drop in Tax-exempt Bond's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Tax-exempt Bond vs. International Developed Markets | Tax-exempt Bond vs. Global Real Estate | Tax-exempt Bond vs. Global Real Estate | Tax-exempt Bond vs. Global Real Estate |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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