Correlation Between Dow Jones and New Jersey
Can any of the company-specific risk be diversified away by investing in both Dow Jones and New Jersey 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 New Jersey 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 New Jersey Tax Free, you can compare the effects of market volatilities on Dow Jones and New Jersey 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 New Jersey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and New Jersey.
Diversification Opportunities for Dow Jones and New Jersey
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and New is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and New Jersey Tax Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Jersey Tax 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 New Jersey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Jersey Tax has no effect on the direction of Dow Jones i.e., Dow Jones and New Jersey go up and down completely randomly.
Pair Corralation between Dow Jones and New Jersey
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the New Jersey. In addition to that, Dow Jones is 3.41 times more volatile than New Jersey Tax Free. It trades about -0.22 of its total potential returns per unit of risk. New Jersey Tax Free is currently generating about 0.14 per unit of volatility. If you would invest 1,134 in New Jersey Tax Free on November 27, 2024 and sell it today you would earn a total of 6.00 from holding New Jersey Tax Free or generate 0.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Dow Jones Industrial vs. New Jersey Tax Free
Performance |
| Timeline |
Dow Jones and New Jersey Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
New Jersey Tax Free
Pair trading matchups for New Jersey
Pair Trading with Dow Jones and New Jersey
The main advantage of trading using opposite Dow Jones and New Jersey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, New Jersey 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 New Jersey will offset losses from the drop in New Jersey's long position.The idea behind Dow Jones Industrial and New Jersey Tax Free pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| New Jersey vs. Tiaa Cref Lifestyle Moderate | New Jersey vs. Hartford Moderate Allocation | New Jersey vs. Franklin Moderate Allocation | New Jersey vs. Voya Target Retirement |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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