Correlation Between IShares Trust and Dow Jones
Can any of the company-specific risk be diversified away by investing in both IShares Trust 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 IShares Trust and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Trust and Dow Jones Industrial, you can compare the effects of market volatilities on IShares Trust 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 IShares Trust with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Trust and Dow Jones.
Diversification Opportunities for IShares Trust and Dow Jones
0.02 | Correlation Coefficient |
Significant diversification
The 3 months correlation between IShares and Dow is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust 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 IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and Dow Jones go up and down completely randomly.
Pair Corralation between IShares Trust and Dow Jones
Given the investment horizon of 90 days IShares Trust is expected to generate 3.75 times less return on investment than Dow Jones. But when comparing it to its historical volatility, iShares Trust is 3.32 times less risky than Dow Jones. It trades about 0.11 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,595,089 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 834,562 from holding Dow Jones Industrial or generate 23.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Trust vs. Dow Jones Industrial
Performance |
| Timeline |
IShares Trust and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
iShares Trust
Pair trading matchups for IShares Trust
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with IShares Trust and Dow Jones
The main advantage of trading using opposite IShares Trust and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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.| IShares Trust vs. Vanguard Short Term Inflation Protected | IShares Trust vs. iShares TIPS Bond | IShares Trust vs. Invesco PureBeta 0 5 | IShares Trust vs. Goldman Sachs Access |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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