Correlation Between Dow Jones and Vanguard Consumer
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Consumer 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 Consumer 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 Consumer Discretionary, you can compare the effects of market volatilities on Dow Jones and Vanguard Consumer 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 Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Consumer.
Diversification Opportunities for Dow Jones and Vanguard Consumer
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard Consumer Discretionar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer 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 Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Consumer go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Consumer
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.12 times less return on investment than Vanguard Consumer. But when comparing it to its historical volatility, Dow Jones Industrial is 1.34 times less risky than Vanguard Consumer. It trades about 0.15 of its potential returns per unit of risk. Vanguard Consumer Discretionary is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 32,851 in Vanguard Consumer Discretionary on August 24, 2024 and sell it today you would earn a total of 3,417 from holding Vanguard Consumer Discretionary or generate 10.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard Consumer Discretionar
Performance |
| Timeline |
Dow Jones and Vanguard Consumer Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Consumer Discretionary
Pair trading matchups for Vanguard Consumer
Pair Trading with Dow Jones and Vanguard Consumer
The main advantage of trading using opposite Dow Jones and Vanguard Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Consumer 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 Consumer will offset losses from the drop in Vanguard Consumer's long position.| Dow Jones vs. Barrick Gold Corp | Dow Jones vs. Jutal Offshore Oil | Dow Jones vs. Eastern Co | Dow Jones vs. Weyco Group |
| Vanguard Consumer vs. iShares Global Industrials | Vanguard Consumer vs. iShares Global Consumer | Vanguard Consumer vs. iShares Global Utilities | Vanguard Consumer vs. iShares Global Financials |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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