Correlation Between Dow Jones and 10 Year
Can any of the company-specific risk be diversified away by investing in both Dow Jones and 10 Year 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 10 Year 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 10 Year T Note Futures, you can compare the effects of market volatilities on Dow Jones and 10 Year 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 10 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and 10 Year.
Diversification Opportunities for Dow Jones and 10 Year
Pay attention - limited upside
The 3 months correlation between Dow and ZNUSD is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and 10 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 10 Year T 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 10 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 10 Year T has no effect on the direction of Dow Jones i.e., Dow Jones and 10 Year go up and down completely randomly.
Pair Corralation between Dow Jones and 10 Year
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.87 times more return on investment than 10 Year. However, Dow Jones is 1.87 times more volatile than 10 Year T Note Futures. It trades about 0.13 of its potential returns per unit of risk. 10 Year T Note Futures is currently generating about 0.0 per unit of risk. If you would invest 3,543,042 in Dow Jones Industrial on August 25, 2024 and sell it today you would earn a total of 886,609 from holding Dow Jones Industrial or generate 25.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 97.28% |
| Values | Daily Returns |
Dow Jones Industrial vs. 10 Year T Note Futures
Performance |
| Timeline |
Dow Jones and 10 Year Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
10 Year T Note Futures
Pair trading matchups for 10 Year
Pair Trading with Dow Jones and 10 Year
The main advantage of trading using opposite Dow Jones and 10 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, 10 Year 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 10 Year will offset losses from the drop in 10 Year's long position.| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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