Correlation Between Dow Jones and ULT
Can any of the company-specific risk be diversified away by investing in both Dow Jones and ULT 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 ULT 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 ULT, you can compare the effects of market volatilities on Dow Jones and ULT 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 ULT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and ULT.
Diversification Opportunities for Dow Jones and ULT
Modest diversification
The 3 months correlation between Dow and ULT is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and ULT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ULT 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 ULT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ULT has no effect on the direction of Dow Jones i.e., Dow Jones and ULT go up and down completely randomly.
Pair Corralation between Dow Jones and ULT
Assuming the 90 days trading horizon Dow Jones is expected to generate 6.29 times less return on investment than ULT. But when comparing it to its historical volatility, Dow Jones Industrial is 4.09 times less risky than ULT. It trades about 0.08 of its potential returns per unit of risk. ULT is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 0.29 in ULT on August 30, 2024 and sell it today you would earn a total of 0.22 from holding ULT or generate 73.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 32.66% |
| Values | Daily Returns |
Dow Jones Industrial vs. ULT
Performance |
| Timeline |
Dow Jones and ULT Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
ULT
Pair trading matchups for ULT
Pair Trading with Dow Jones and ULT
The main advantage of trading using opposite Dow Jones and ULT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, ULT 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 ULT will offset losses from the drop in ULT's long position.| Dow Jones vs. Skillful Craftsman Education | Dow Jones vs. Acco Brands | Dow Jones vs. Cracker Barrel Old | Dow Jones vs. Coursera |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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