Correlation Between Dow Jones and California Municipal
Can any of the company-specific risk be diversified away by investing in both Dow Jones and California Municipal 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 California Municipal 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 California Municipal Fund, you can compare the effects of market volatilities on Dow Jones and California Municipal 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 California Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and California Municipal.
Diversification Opportunities for Dow Jones and California Municipal
-0.12 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and California is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and California Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal 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 California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of Dow Jones i.e., Dow Jones and California Municipal go up and down completely randomly.
Pair Corralation between Dow Jones and California Municipal
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 3.93 times more return on investment than California Municipal. However, Dow Jones is 3.93 times more volatile than California Municipal Fund. It trades about 0.2 of its potential returns per unit of risk. California Municipal Fund is currently generating about 0.06 per unit of risk. If you would invest 4,093,693 in Dow Jones Industrial on September 2, 2024 and sell it today you would earn a total of 397,372 from holding Dow Jones Industrial or generate 9.71% 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. California Municipal Fund
Performance |
| Timeline |
Dow Jones and California Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
California Municipal Fund
Pair trading matchups for California Municipal
Pair Trading with Dow Jones and California Municipal
The main advantage of trading using opposite Dow Jones and California Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, California Municipal 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 California Municipal will offset losses from the drop in California Municipal's long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
Other Complementary Tools
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges |