Correlation Between Dow Jones and Tax-exempt High
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Tax-exempt High 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 High 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 High Yield, you can compare the effects of market volatilities on Dow Jones and Tax-exempt High 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 High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Tax-exempt High.
Diversification Opportunities for Dow Jones and Tax-exempt High
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and Tax-exempt is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Tax Exempt High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt High 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 High. 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 High has no effect on the direction of Dow Jones i.e., Dow Jones and Tax-exempt High go up and down completely randomly.
Pair Corralation between Dow Jones and Tax-exempt High
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.8 times more return on investment than Tax-exempt High. However, Dow Jones is 2.8 times more volatile than Tax Exempt High Yield. It trades about 0.21 of its potential returns per unit of risk. Tax Exempt High Yield is currently generating about 0.12 per unit of risk. If you would invest 4,237,436 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 192,215 from holding Dow Jones Industrial or generate 4.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Tax Exempt High Yield
Performance |
| Timeline |
Dow Jones and Tax-exempt High Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Tax Exempt High Yield
Pair trading matchups for Tax-exempt High
Pair Trading with Dow Jones and Tax-exempt High
The main advantage of trading using opposite Dow Jones and Tax-exempt High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Tax-exempt High 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 High will offset losses from the drop in Tax-exempt High's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Tax-exempt High vs. Great West Real Estate | Tax-exempt High vs. Columbia Real Estate | Tax-exempt High vs. Dunham Real Estate | Tax-exempt High vs. Simt 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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