Correlation Between Dow Jones and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard 500 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 500 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 500 Index, you can compare the effects of market volatilities on Dow Jones and Vanguard 500 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 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard 500.
Diversification Opportunities for Dow Jones and Vanguard 500
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Vanguard is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 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 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard 500 go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard 500
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.15 times more return on investment than Vanguard 500. However, Dow Jones is 1.15 times more volatile than Vanguard 500 Index. It trades about 0.15 of its potential returns per unit of risk. Vanguard 500 Index is currently generating about 0.15 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% 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 500 Index
Performance |
| Timeline |
Dow Jones and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard 500 Index
Pair trading matchups for Vanguard 500
Pair Trading with Dow Jones and Vanguard 500
The main advantage of trading using opposite Dow Jones and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.| Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Titan Machinery | Dow Jones vs. Simon Property Group |
| Vanguard 500 vs. Barings Emerging Markets | Vanguard 500 vs. Doubleline Emerging Markets | Vanguard 500 vs. Western Asset Diversified | Vanguard 500 vs. Origin Emerging Markets |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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