Correlation Between Dow Jones and Value Line
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Value Line 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 Value Line 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 Value Line Small, you can compare the effects of market volatilities on Dow Jones and Value Line 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 Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Value Line.
Diversification Opportunities for Dow Jones and Value Line
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and VALUE is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Value Line Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Small 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 Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Small has no effect on the direction of Dow Jones i.e., Dow Jones and Value Line go up and down completely randomly.
Pair Corralation between Dow Jones and Value Line
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.15 times less return on investment than Value Line. But when comparing it to its historical volatility, Dow Jones Industrial is 1.4 times less risky than Value Line. It trades about 0.37 of its potential returns per unit of risk. Value Line Small is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 5,929 in Value Line Small on September 1, 2024 and sell it today you would earn a total of 535.00 from holding Value Line Small or generate 9.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Jones Industrial vs. Value Line Small
Performance |
| Timeline |
Dow Jones and Value Line Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Value Line Small
Pair trading matchups for Value Line
Pair Trading with Dow Jones and Value Line
The main advantage of trading using opposite Dow Jones and Value Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Value Line 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 Value Line will offset losses from the drop in Value Line's long position.| Dow Jones vs. Catalyst Pharmaceuticals | Dow Jones vs. Sphere Entertainment Co | Dow Jones vs. National CineMedia | Dow Jones vs. Mink Therapeutics |
| Value Line vs. Value Line Premier | Value Line vs. Value Line Income | Value Line vs. Ssga International Stock | Value Line vs. Scout Small Cap |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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