Correlation Between Dow Jones and Wealthsimple Developed
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Wealthsimple Developed 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 Wealthsimple Developed 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 Wealthsimple Developed Markets, you can compare the effects of market volatilities on Dow Jones and Wealthsimple Developed 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 Wealthsimple Developed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Wealthsimple Developed.
Diversification Opportunities for Dow Jones and Wealthsimple Developed
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and Wealthsimple is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Wealthsimple Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthsimple Developed 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 Wealthsimple Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealthsimple Developed has no effect on the direction of Dow Jones i.e., Dow Jones and Wealthsimple Developed go up and down completely randomly.
Pair Corralation between Dow Jones and Wealthsimple Developed
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.5 times more return on investment than Wealthsimple Developed. However, Dow Jones is 1.5 times more volatile than Wealthsimple Developed Markets. It trades about 0.19 of its potential returns per unit of risk. Wealthsimple Developed Markets is currently generating about -0.16 per unit of risk. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 178,156 from holding Dow Jones Industrial or generate 4.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Wealthsimple Developed Markets
Performance |
| Timeline |
Dow Jones and Wealthsimple Developed Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Wealthsimple Developed Markets
Pair trading matchups for Wealthsimple Developed
Pair Trading with Dow Jones and Wealthsimple Developed
The main advantage of trading using opposite Dow Jones and Wealthsimple Developed positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Wealthsimple Developed 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 Wealthsimple Developed will offset losses from the drop in Wealthsimple Developed's 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 |
| Wealthsimple Developed vs. iShares Core MSCI | Wealthsimple Developed vs. Vanguard FTSE Developed | Wealthsimple Developed vs. iShares MSCI EAFE | Wealthsimple Developed vs. iShares Core MSCI |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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