Correlation Between Dow Jones and Intermediate Term
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Intermediate Term 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 Intermediate Term 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 Intermediate Term Bond Fund, you can compare the effects of market volatilities on Dow Jones and Intermediate Term 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 Intermediate Term. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Intermediate Term.
Diversification Opportunities for Dow Jones and Intermediate Term
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Intermediate is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Intermediate Term Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Term Bond 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 Intermediate Term. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Term Bond has no effect on the direction of Dow Jones i.e., Dow Jones and Intermediate Term go up and down completely randomly.
Pair Corralation between Dow Jones and Intermediate Term
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.86 times more return on investment than Intermediate Term. However, Dow Jones is 1.86 times more volatile than Intermediate Term Bond Fund. It trades about 0.11 of its potential returns per unit of risk. Intermediate Term Bond Fund is currently generating about 0.04 per unit of risk. If you would invest 3,312,774 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 1,116,877 from holding Dow Jones Industrial or generate 33.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Intermediate Term Bond Fund
Performance |
| Timeline |
Dow Jones and Intermediate Term Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Intermediate Term Bond Fund
Pair trading matchups for Intermediate Term
Pair Trading with Dow Jones and Intermediate Term
The main advantage of trading using opposite Dow Jones and Intermediate Term positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Intermediate Term 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 Intermediate Term will offset losses from the drop in Intermediate Term's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
| Intermediate Term vs. Capital Growth Fund | Intermediate Term vs. Emerging Markets Fund | Intermediate Term vs. High Income Fund | Intermediate Term vs. International Fund International |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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