Correlation Between FlexShares High and Dow Jones
Can any of the company-specific risk be diversified away by investing in both FlexShares High 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 FlexShares High and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares High Yield and Dow Jones Industrial, you can compare the effects of market volatilities on FlexShares High 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 FlexShares High with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares High and Dow Jones.
Diversification Opportunities for FlexShares High and Dow Jones
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FlexShares and Dow is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares High Yield 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 FlexShares High 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 FlexShares High Yield 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 FlexShares High i.e., FlexShares High and Dow Jones go up and down completely randomly.
Pair Corralation between FlexShares High and Dow Jones
Given the investment horizon of 90 days FlexShares High is expected to generate 1.63 times less return on investment than Dow Jones. But when comparing it to its historical volatility, FlexShares High Yield is 1.78 times less risky than Dow Jones. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 3,347,646 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 1,124,560 from holding Dow Jones Industrial or generate 33.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
FlexShares High Yield vs. Dow Jones Industrial
Performance |
| Timeline |
FlexShares High and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
FlexShares High Yield
Pair trading matchups for FlexShares High
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with FlexShares High and Dow Jones
The main advantage of trading using opposite FlexShares High and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares High 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.| FlexShares High vs. iShares Edge Investment | FlexShares High vs. iShares Intl High | FlexShares High vs. iShares JP Morgan |
| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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