Correlation Between Dow Jones and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Materials 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 Materials 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 Materials Index, you can compare the effects of market volatilities on Dow Jones and Vanguard Materials 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 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Materials.
Diversification Opportunities for Dow Jones and Vanguard Materials
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Materials go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Materials
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.72 times more return on investment than Vanguard Materials. However, Dow Jones Industrial is 1.38 times less risky than Vanguard Materials. It trades about 0.11 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.07 per unit of risk. If you would invest 3,356,286 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 1,073,365 from holding Dow Jones Industrial or generate 31.98% 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. Vanguard Materials Index
Performance |
| Timeline |
Dow Jones and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Materials Index
Pair trading matchups for Vanguard Materials
Pair Trading with Dow Jones and Vanguard Materials
The main advantage of trading using opposite Dow Jones and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Materials 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 Materials will offset losses from the drop in Vanguard Materials' long position.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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