Correlation Between Dow Jones and Select Equity
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Select Equity 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 Select Equity 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 Select Equity Fund, you can compare the effects of market volatilities on Dow Jones and Select Equity 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 Select Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Select Equity.
Diversification Opportunities for Dow Jones and Select Equity
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Select is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Select Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Equity 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 Select Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Equity has no effect on the direction of Dow Jones i.e., Dow Jones and Select Equity go up and down completely randomly.
Pair Corralation between Dow Jones and Select Equity
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.21 times more return on investment than Select Equity. However, Dow Jones is 1.21 times more volatile than Select Equity Fund. It trades about 0.37 of its potential returns per unit of risk. Select Equity Fund is currently generating about 0.39 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 Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Select Equity Fund
Performance |
| Timeline |
Dow Jones and Select Equity Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Select Equity Fund
Pair trading matchups for Select Equity
Pair Trading with Dow Jones and Select Equity
The main advantage of trading using opposite Dow Jones and Select Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Select Equity 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 Select Equity will offset losses from the drop in Select Equity's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Select Equity vs. International Developed Markets | Select Equity vs. Global Real Estate | Select Equity vs. Global Real Estate | Select Equity vs. Growth Strategy Fund |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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