Correlation Between IShares SP and Dow Jones
Can any of the company-specific risk be diversified away by investing in both IShares SP 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 SP 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 SP 500 and Dow Jones Industrial, you can compare the effects of market volatilities on IShares SP 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 SP with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Dow Jones.
Diversification Opportunities for IShares SP and Dow Jones
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between IShares and Dow is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares SP 500 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 SP 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 SP 500 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 SP i.e., IShares SP and Dow Jones go up and down completely randomly.
Pair Corralation between IShares SP and Dow Jones
Considering the 90-day investment horizon IShares SP is expected to generate 1.62 times less return on investment than Dow Jones. But when comparing it to its historical volatility, iShares SP 500 is 1.28 times less risky than Dow Jones. It trades about 0.12 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,251,495 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 135,540 from holding Dow Jones Industrial or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares SP 500 vs. Dow Jones Industrial
Performance |
| Timeline |
IShares SP and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
iShares SP 500
Pair trading matchups for IShares SP
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with IShares SP and Dow Jones
The main advantage of trading using opposite IShares SP and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP 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 SP vs. iShares SP 500 | IShares SP vs. iShares SP Mid Cap | IShares SP vs. iShares SP Small Cap | IShares SP vs. iShares SP Mid Cap |
| Dow Jones vs. Barrick Gold Corp | Dow Jones vs. Jutal Offshore Oil | Dow Jones vs. Eastern Co | Dow Jones vs. Weyco Group |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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