Correlation Between Dow Jones and T REX
Can any of the company-specific risk be diversified away by investing in both Dow Jones and T REX 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 T REX 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 T REX 2X Long, you can compare the effects of market volatilities on Dow Jones and T REX 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 T REX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and T REX.
Diversification Opportunities for Dow Jones and T REX
Poor diversification
The 3 months correlation between Dow and TSLT is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and T REX 2X Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T REX 2X 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 T REX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T REX 2X has no effect on the direction of Dow Jones i.e., Dow Jones and T REX go up and down completely randomly.
Pair Corralation between Dow Jones and T REX
Assuming the 90 days trading horizon Dow Jones is expected to generate 4.0 times less return on investment than T REX. But when comparing it to its historical volatility, Dow Jones Industrial is 11.03 times less risky than T REX. It trades about 0.15 of its potential returns per unit of risk. T REX 2X Long is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,991 in T REX 2X Long on September 1, 2024 and sell it today you would earn a total of 917.00 from holding T REX 2X Long or generate 46.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. T REX 2X Long
Performance |
| Timeline |
Dow Jones and T REX Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
T REX 2X Long
Pair trading matchups for T REX
Pair Trading with Dow Jones and T REX
The main advantage of trading using opposite Dow Jones and T REX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, T REX 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 T REX will offset losses from the drop in T REX's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| T REX vs. Tidal Trust II | T REX vs. Tidal Trust II | T REX vs. Direxion Daily META | T REX vs. Direxion Daily META |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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