Correlation Between Dow Jones and Government Securities
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Government Securities 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 Government Securities 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 Government Securities Fund, you can compare the effects of market volatilities on Dow Jones and Government Securities 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 Government Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Government Securities.
Diversification Opportunities for Dow Jones and Government Securities
-0.65 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Government is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Government Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Securities 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 Government Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Securities has no effect on the direction of Dow Jones i.e., Dow Jones and Government Securities go up and down completely randomly.
Pair Corralation between Dow Jones and Government Securities
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.05 times more return on investment than Government Securities. However, Dow Jones is 2.05 times more volatile than Government Securities Fund. It trades about 0.08 of its potential returns per unit of risk. Government Securities Fund is currently generating about 0.04 per unit of risk. If you would invest 3,400,504 in Dow Jones Industrial on September 2, 2024 and sell it today you would earn a total of 1,090,561 from holding Dow Jones Industrial or generate 32.07% 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. Government Securities Fund
Performance |
| Timeline |
Dow Jones and Government Securities Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Government Securities Fund
Pair trading matchups for Government Securities
Pair Trading with Dow Jones and Government Securities
The main advantage of trading using opposite Dow Jones and Government Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Government Securities 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 Government Securities will offset losses from the drop in Government Securities' long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| Government Securities vs. Capital Growth Fund | Government Securities vs. High Income Fund | Government Securities vs. International Fund International | Government Securities vs. Growth Income Fund |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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