Correlation Between Dow Jones and Vanguard Funds
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Funds 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 Vanguard Funds 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 Vanguard Funds PLC, you can compare the effects of market volatilities on Dow Jones and Vanguard Funds 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 Vanguard Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Funds.
Diversification Opportunities for Dow Jones and Vanguard Funds
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Vanguard is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard Funds PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds PLC 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 Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds PLC has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Funds go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Funds
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 4.45 times more return on investment than Vanguard Funds. However, Dow Jones is 4.45 times more volatile than Vanguard Funds PLC. It trades about 0.37 of its potential returns per unit of risk. Vanguard Funds PLC is currently generating about 0.29 per unit of risk. If you would invest 4,176,346 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 314,719 from holding Dow Jones Industrial or generate 7.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard Funds PLC
Performance |
| Timeline |
Dow Jones and Vanguard Funds Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Funds PLC
Pair trading matchups for Vanguard Funds
Pair Trading with Dow Jones and Vanguard Funds
The main advantage of trading using opposite Dow Jones and Vanguard Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Funds 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 Vanguard Funds will offset losses from the drop in Vanguard Funds' long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Vanguard Funds vs. Vanguard SP 500 | Vanguard Funds vs. SPDR Dow Jones | Vanguard Funds vs. iShares Core MSCI | Vanguard Funds vs. iShares SP 500 |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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