Correlation Between Dow Jones and TLT
Can any of the company-specific risk be diversified away by investing in both Dow Jones and TLT 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 TLT 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 TLT, you can compare the effects of market volatilities on Dow Jones and TLT 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 TLT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and TLT.
Diversification Opportunities for Dow Jones and TLT
Weak diversification
The 3 months correlation between Dow and TLT is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and TLT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TLT 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 TLT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TLT has no effect on the direction of Dow Jones i.e., Dow Jones and TLT go up and down completely randomly.
Pair Corralation between Dow Jones and TLT
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.09 times more return on investment than TLT. However, Dow Jones Industrial is 11.02 times less risky than TLT. It trades about 0.08 of its potential returns per unit of risk. TLT is currently generating about 0.0 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 | 75.35% |
| Values | Daily Returns |
Dow Jones Industrial vs. TLT
Performance |
| Timeline |
Dow Jones and TLT Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
TLT
Pair trading matchups for TLT
Pair Trading with Dow Jones and TLT
The main advantage of trading using opposite Dow Jones and TLT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, TLT 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 TLT will offset losses from the drop in TLT's long position.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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