Correlation Between Small Company and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Small Company and Dow Jones 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 Small Company and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Small Pany Growth and Dow Jones Industrial, you can compare the effects of market volatilities on Small Company and Dow Jones 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 Small Company with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Company and Dow Jones.
Diversification Opportunities for Small Company and Dow Jones
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Small and Dow is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Small Pany Growth and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and Small Company 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 Small Pany Growth are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Small Company i.e., Small Company and Dow Jones go up and down completely randomly.
Pair Corralation between Small Company and Dow Jones
Assuming the 90 days horizon Small Pany Growth is expected to under-perform the Dow Jones. In addition to that, Small Company is 1.42 times more volatile than Dow Jones Industrial. It trades about -0.08 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.01 per unit of volatility. If you would invest 4,473,657 in Dow Jones Industrial on October 26, 2024 and sell it today you would lose (17,150) from holding Dow Jones Industrial or give up 0.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 97.5% |
| Values | Daily Returns |
Small Pany Growth vs. Dow Jones Industrial
Performance |
| Timeline |
Small Company and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Small Pany Growth
Pair trading matchups for Small Company
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Small Company and Dow Jones
The main advantage of trading using opposite Small Company and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Company position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Small Company vs. Small Pany Value | Small Company vs. Large Pany Value | Small Company vs. Wilshire Large | Small Company vs. Small Pany Growth |
| Dow Jones vs. Asure Software | Dow Jones vs. Amkor Technology | Dow Jones vs. Radcom | Dow Jones vs. Senmiao Technology |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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