Correlation Between Dow Jones and Short-term Investment
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Short-term Investment 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 Short-term Investment 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 Short Term Investment Trust, you can compare the effects of market volatilities on Dow Jones and Short-term Investment 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 Short-term Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Short-term Investment.
Diversification Opportunities for Dow Jones and Short-term Investment
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Short-term is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Short Term Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Term Investment 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 Short-term Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Term Investment has no effect on the direction of Dow Jones i.e., Dow Jones and Short-term Investment go up and down completely randomly.
Pair Corralation between Dow Jones and Short-term Investment
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 5.88 times more return on investment than Short-term Investment. However, Dow Jones is 5.88 times more volatile than Short Term Investment Trust. It trades about 0.16 of its potential returns per unit of risk. Short Term Investment Trust is currently generating about 0.13 per unit of risk. If you would invest 3,880,733 in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of 610,332 from holding Dow Jones Industrial or generate 15.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 48.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Short Term Investment Trust
Performance |
| Timeline |
Dow Jones and Short-term Investment Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Short Term Investment Trust
Pair trading matchups for Short-term Investment
Pair Trading with Dow Jones and Short-term Investment
The main advantage of trading using opposite Dow Jones and Short-term Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Short-term Investment 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 Short-term Investment will offset losses from the drop in Short-term Investment's long position.| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
| Short-term Investment vs. Legg Mason Bw | Short-term Investment vs. Blackrock Sm Cap | Short-term Investment vs. Wasatch Small Cap | Short-term Investment vs. Delaware Limited Term Diversified |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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