Correlation Between Dow Jones and Energy Fund
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Energy Fund 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 Energy Fund 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 Energy Fund Investor, you can compare the effects of market volatilities on Dow Jones and Energy Fund 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 Energy Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Energy Fund.
Diversification Opportunities for Dow Jones and Energy Fund
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Energy is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Energy Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Fund Investor 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 Energy Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Fund Investor has no effect on the direction of Dow Jones i.e., Dow Jones and Energy Fund go up and down completely randomly.
Pair Corralation between Dow Jones and Energy Fund
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.65 times more return on investment than Energy Fund. However, Dow Jones Industrial is 1.53 times less risky than Energy Fund. It trades about 0.11 of its potential returns per unit of risk. Energy Fund Investor is currently generating about 0.04 per unit of risk. If you would invest 3,858,519 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 632,546 from holding Dow Jones Industrial or generate 16.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.47% |
| Values | Daily Returns |
Dow Jones Industrial vs. Energy Fund Investor
Performance |
| Timeline |
Dow Jones and Energy Fund Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Energy Fund Investor
Pair trading matchups for Energy Fund
Pair Trading with Dow Jones and Energy Fund
The main advantage of trading using opposite Dow Jones and Energy Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Energy Fund 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 Energy Fund will offset losses from the drop in Energy Fund's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Energy Fund vs. Basic Materials Fund | Energy Fund vs. Electronics Fund Investor | Energy Fund vs. Health Care Fund | Energy Fund vs. Precious Metals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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