Correlation Between Dow Jones and Vanguard Utilities
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Vanguard Utilities 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 Utilities 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 Utilities Index, you can compare the effects of market volatilities on Dow Jones and Vanguard Utilities 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 Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Vanguard Utilities.
Diversification Opportunities for Dow Jones and Vanguard Utilities
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities 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 Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Dow Jones i.e., Dow Jones and Vanguard Utilities go up and down completely randomly.
Pair Corralation between Dow Jones and Vanguard Utilities
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.85 times more return on investment than Vanguard Utilities. However, Dow Jones Industrial is 1.17 times less risky than Vanguard Utilities. It trades about 0.21 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.02 per unit of risk. If you would invest 4,237,436 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 192,215 from holding Dow Jones Industrial or generate 4.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Vanguard Utilities Index
Performance |
| Timeline |
Dow Jones and Vanguard Utilities Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Vanguard Utilities Index
Pair trading matchups for Vanguard Utilities
Pair Trading with Dow Jones and Vanguard Utilities
The main advantage of trading using opposite Dow Jones and Vanguard Utilities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Vanguard Utilities 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 Utilities will offset losses from the drop in Vanguard Utilities' 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 Utilities vs. Vanguard Consumer Staples | Vanguard Utilities vs. Vanguard Materials Index | Vanguard Utilities vs. Vanguard Communication Services | Vanguard Utilities vs. Vanguard Financials Index |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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