Correlation Between Large Cap and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Large Cap 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 Large Cap and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Large Cap Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Large Cap 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 Large Cap with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Dow Jones.
Diversification Opportunities for Large Cap and Dow Jones
Very poor diversification
The 3 months correlation between Large and Dow is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Fund 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 Large Cap 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 Large Cap Fund 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 Large Cap i.e., Large Cap and Dow Jones go up and down completely randomly.
Pair Corralation between Large Cap and Dow Jones
Assuming the 90 days horizon Large Cap is expected to generate 1.89 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Large Cap Fund is 1.06 times less risky than Dow Jones. It trades about 0.1 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 4,109,142 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 376,889 from holding Dow Jones Industrial or generate 9.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Large Cap Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Large Cap and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Large Cap Fund
Pair trading matchups for Large Cap
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Large Cap and Dow Jones
The main advantage of trading using opposite Large Cap and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap 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.| Large Cap vs. Wasatch Large Cap | Large Cap vs. Loomis Sayles Bond | Large Cap vs. Harbor International Fund | Large Cap vs. Equity Series Class |
| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Watchlist Optimization Optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm | |
| Share Portfolio Track or share privately all of your investments from the convenience of any device | |
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments |