Correlation Between Dow Jones and State Street
Can any of the company-specific risk be diversified away by investing in both Dow Jones and State Street 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 State Street 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 State Street Master, you can compare the effects of market volatilities on Dow Jones and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and State Street.
Diversification Opportunities for Dow Jones and State Street
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and State is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and State Street Master in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Master 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Master has no effect on the direction of Dow Jones i.e., Dow Jones and State Street go up and down completely randomly.
Pair Corralation between Dow Jones and State Street
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.23 times more return on investment than State Street. However, Dow Jones is 1.23 times more volatile than State Street Master. It trades about 0.08 of its potential returns per unit of risk. State Street Master is currently generating about 0.03 per unit of risk. If you would invest 3,347,646 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 1,124,560 from holding Dow Jones Industrial or generate 33.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. State Street Master
Performance |
| Timeline |
Dow Jones and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
State Street Master
Pair trading matchups for State Street
Pair Trading with Dow Jones and State Street
The main advantage of trading using opposite Dow Jones and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
| State Street vs. Calvert High Yield | State Street vs. American Century High | State Street vs. Ppm High Yield | State Street vs. Gmo High Yield |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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