Correlation Between IBEX 35 and Dow Jones
Can any of the company-specific risk be diversified away by investing in both IBEX 35 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 IBEX 35 and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IBEX 35 Index and Dow Jones Industrial, you can compare the effects of market volatilities on IBEX 35 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 IBEX 35 with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and Dow Jones.
Diversification Opportunities for IBEX 35 and Dow Jones
Significant diversification
The 3 months correlation between IBEX and Dow is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index 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 IBEX 35 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 IBEX 35 Index 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 IBEX 35 i.e., IBEX 35 and Dow Jones go up and down completely randomly.
Pair Corralation between IBEX 35 and Dow Jones
Assuming the 90 days trading horizon IBEX 35 Index is expected to generate 0.86 times more return on investment than Dow Jones. However, IBEX 35 Index is 1.16 times less risky than Dow Jones. It trades about 0.34 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.1 per unit of risk. If you would invest 1,143,570 in IBEX 35 Index on October 22, 2024 and sell it today you would earn a total of 48,060 from holding IBEX 35 Index or generate 4.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
IBEX 35 Index vs. Dow Jones Industrial
Performance |
| Timeline |
IBEX 35 and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
IBEX 35 Index
Pair trading matchups for IBEX 35
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with IBEX 35 and Dow Jones
The main advantage of trading using opposite IBEX 35 and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBEX 35 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.| IBEX 35 vs. Inhome Prime Properties | IBEX 35 vs. Cellnex Telecom SA | IBEX 35 vs. Elaia Investment Spain | IBEX 35 vs. Caixabank SA |
| Dow Jones vs. Nasdaq Inc | Dow Jones vs. Summit Materials | Dow Jones vs. Vulcan Materials | Dow Jones vs. Celsius Holdings |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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