Correlation Between FlexShares International and Dow Jones
Can any of the company-specific risk be diversified away by investing in both FlexShares International 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 International 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 International Quality and Dow Jones Industrial, you can compare the effects of market volatilities on FlexShares International 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 International with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and Dow Jones.
Diversification Opportunities for FlexShares International and Dow Jones
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between FlexShares and Dow is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali 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 International 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 International Quality 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 International i.e., FlexShares International and Dow Jones go up and down completely randomly.
Pair Corralation between FlexShares International and Dow Jones
Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the Dow Jones. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares International Quality is 1.26 times less risky than Dow Jones. The etf trades about -0.15 of its potential returns per unit of risk. The Dow Jones Industrial is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 4,214,154 in Dow Jones Industrial on August 31, 2024 and sell it today you would earn a total of 258,052 from holding Dow Jones Industrial or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FlexShares International Quali vs. Dow Jones Industrial
Performance |
| Timeline |
FlexShares International and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
FlexShares International Quality
Pair trading matchups for FlexShares International
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with FlexShares International and Dow Jones
The main advantage of trading using opposite FlexShares International and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International 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.The idea behind FlexShares International Quality and Dow Jones Industrial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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