Correlation Between Dow Jones and Main Sector
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Main Sector 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 Main Sector 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 Main Sector Rotation, you can compare the effects of market volatilities on Dow Jones and Main Sector 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 Main Sector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Main Sector.
Diversification Opportunities for Dow Jones and Main Sector
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Main is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Main Sector Rotation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Sector Rotation 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 Main Sector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Sector Rotation has no effect on the direction of Dow Jones i.e., Dow Jones and Main Sector go up and down completely randomly.
Pair Corralation between Dow Jones and Main Sector
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.87 times more return on investment than Main Sector. However, Dow Jones Industrial is 1.15 times less risky than Main Sector. It trades about 0.24 of its potential returns per unit of risk. Main Sector Rotation is currently generating about 0.16 per unit of risk. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Main Sector Rotation
Performance |
| Timeline |
Dow Jones and Main Sector Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Main Sector Rotation
Pair trading matchups for Main Sector
Pair Trading with Dow Jones and Main Sector
The main advantage of trading using opposite Dow Jones and Main Sector positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Main Sector 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 Main Sector will offset losses from the drop in Main Sector'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 |
| Main Sector vs. Main Thematic Innovation | Main Sector vs. SPDR SSGA Sector | Main Sector vs. iShares MSCI USA | Main Sector vs. SPDR MSCI USA |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
Other Complementary Tools
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Positions Ratings Determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance |