Correlation Between Dow Jones and American Funds
Can any of the company-specific risk be diversified away by investing in both Dow Jones and American Funds 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 American Funds 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 American Funds 2050, you can compare the effects of market volatilities on Dow Jones and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and American Funds.
Diversification Opportunities for Dow Jones and American Funds
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and American is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and American Funds 2050 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 2050 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds 2050 has no effect on the direction of Dow Jones i.e., Dow Jones and American Funds go up and down completely randomly.
Pair Corralation between Dow Jones and American Funds
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.03 times less return on investment than American Funds. But when comparing it to its historical volatility, Dow Jones Industrial is 1.02 times less risky than American Funds. It trades about 0.12 of its potential returns per unit of risk. American Funds 2050 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 1,661 in American Funds 2050 on August 31, 2024 and sell it today you would earn a total of 561.00 from holding American Funds 2050 or generate 33.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. American Funds 2050
Performance |
| Timeline |
Dow Jones and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
American Funds 2050
Pair trading matchups for American Funds
Pair Trading with Dow Jones and American Funds
The main advantage of trading using opposite Dow Jones and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| American Funds vs. Vanguard Target Retirement | American Funds vs. American Funds 2050 | American Funds vs. American Funds 2050 | American Funds vs. American Funds 2050 |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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