Correlation Between Dow Jones and Consumer Products
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Consumer Products 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 Consumer Products 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 Consumer Products Fund, you can compare the effects of market volatilities on Dow Jones and Consumer Products 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 Consumer Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Consumer Products.
Diversification Opportunities for Dow Jones and Consumer Products
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Dow and Consumer is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Consumer Products Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Products 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 Consumer Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Products has no effect on the direction of Dow Jones i.e., Dow Jones and Consumer Products go up and down completely randomly.
Pair Corralation between Dow Jones and Consumer Products
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.57 times more return on investment than Consumer Products. However, Dow Jones Industrial is 1.76 times less risky than Consumer Products. It trades about 0.08 of its potential returns per unit of risk. Consumer Products Fund is currently generating about 0.01 per unit of risk. If you would invest 3,378,148 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 1,107,883 from holding Dow Jones Industrial or generate 32.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Consumer Products Fund
Performance |
| Timeline |
Dow Jones and Consumer Products Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Consumer Products Fund
Pair trading matchups for Consumer Products
Pair Trading with Dow Jones and Consumer Products
The main advantage of trading using opposite Dow Jones and Consumer Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Consumer Products 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 Consumer Products will offset losses from the drop in Consumer Products' long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Consumer Products vs. Basic Materials Fund | Consumer Products vs. Nasdaq 100 Fund Class | Consumer Products vs. Health Care Fund | Consumer Products vs. Energy Fund Class |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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