Correlation Between Dow Jones and Vanguard Mid-cap
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Mid-cap 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 Mid-cap 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 Mid Cap Index, you can compare the effects of market volatilities on Dow Jones and Vanguard Mid-cap 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 Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Mid-cap.
Diversification Opportunities for Dow Jones and Vanguard Mid-cap
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 Mid Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Mid-cap go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Mid-cap
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.83 times more return on investment than Vanguard Mid-cap. However, Dow Jones Industrial is 1.21 times less risky than Vanguard Mid-cap. It trades about 0.08 of its potential returns per unit of risk. Vanguard Mid Cap Index is currently generating about 0.06 per unit of risk. If you would invest 3,408,927 in Dow Jones Industrial on November 5, 2024 and sell it today you would earn a total of 1,045,539 from holding Dow Jones Industrial or generate 30.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard Mid Cap Index
Performance |
| Timeline |
Dow Jones and Vanguard Mid-cap Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Mid Cap Index
Pair trading matchups for Vanguard Mid-cap
Pair Trading with Dow Jones and Vanguard Mid-cap
The main advantage of trading using opposite Dow Jones and Vanguard Mid-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Mid-cap 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 Mid-cap will offset losses from the drop in Vanguard Mid-cap's long position.| Dow Jones vs. Fernhill Beverage | Dow Jones vs. Fomento Economico Mexicano | Dow Jones vs. Loud Beverage Group | Dow Jones vs. Diageo PLC ADR |
| Vanguard Mid-cap vs. Vanguard Small Cap Index | Vanguard Mid-cap vs. Vanguard Institutional Index | Vanguard Mid-cap vs. Vanguard Total Bond | Vanguard Mid-cap vs. Vanguard Total International |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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