Correlation Between Dow Jones and Westwood Short
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Westwood Short 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 Westwood Short 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 Westwood Short Duration, you can compare the effects of market volatilities on Dow Jones and Westwood Short 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 Westwood Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Westwood Short.
Diversification Opportunities for Dow Jones and Westwood Short
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Westwood is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Westwood Short Duration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Short Duration 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 Westwood Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Short Duration has no effect on the direction of Dow Jones i.e., Dow Jones and Westwood Short go up and down completely randomly.
Pair Corralation between Dow Jones and Westwood Short
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.87 times more return on investment than Westwood Short. However, Dow Jones is 2.87 times more volatile than Westwood Short Duration. It trades about 0.2 of its potential returns per unit of risk. Westwood Short Duration is currently generating about 0.17 per unit of risk. If you would invest 4,093,693 in Dow Jones Industrial on September 2, 2024 and sell it today you would earn a total of 397,372 from holding Dow Jones Industrial or generate 9.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Westwood Short Duration
Performance |
| Timeline |
Dow Jones and Westwood Short Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Westwood Short Duration
Pair trading matchups for Westwood Short
Pair Trading with Dow Jones and Westwood Short
The main advantage of trading using opposite Dow Jones and Westwood Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Westwood Short 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 Westwood Short will offset losses from the drop in Westwood Short's long position.| Dow Jones vs. Dream Finders Homes | Dow Jones vs. GEN Restaurant Group, | Dow Jones vs. National Beverage Corp | Dow Jones vs. BJs Restaurants |
| Westwood Short vs. Westwood Quality Value | Westwood Short vs. Westwood Largecap Value | Westwood Short vs. Westwood Quality Smidcap | Westwood Short vs. Westwood Smallcap Value |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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