Correlation Between Dow Jones and Vanguard World
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard World 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 World 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 World, you can compare the effects of market volatilities on Dow Jones and Vanguard World 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 World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard World.
Diversification Opportunities for Dow Jones and Vanguard World
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Vanguard is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard World 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 World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard World has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard World go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard World
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.56 times more return on investment than Vanguard World. However, Dow Jones Industrial is 1.79 times less risky than Vanguard World. It trades about 0.29 of its potential returns per unit of risk. Vanguard World is currently generating about -0.06 per unit of risk. If you would invest 4,273,213 in Dow Jones Industrial on November 4, 2024 and sell it today you would earn a total of 181,253 from holding Dow Jones Industrial or generate 4.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard World
Performance |
| Timeline |
Dow Jones and Vanguard World Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard World
Pair trading matchups for Vanguard World
Pair Trading with Dow Jones and Vanguard World
The main advantage of trading using opposite Dow Jones and Vanguard World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard World 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 World will offset losses from the drop in Vanguard World's long position.| Dow Jones vs. Rambler Metals and | Dow Jones vs. Nicola Mining | Dow Jones vs. Old Dominion Freight | Dow Jones vs. United Guardian |
| Vanguard World vs. Vanguard Funds Public | Vanguard World vs. Vanguard Specialized Funds | Vanguard World vs. Vanguard World | Vanguard World vs. Vanguard Index Funds |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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