Correlation Between Equity Income and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Equity Income 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 Equity Income and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Income Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Equity Income 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 Equity Income with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Income and Dow Jones.
Diversification Opportunities for Equity Income and Dow Jones
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Equity and Dow is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Equity Income Fund 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 Equity Income 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 Equity Income Fund 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 Equity Income i.e., Equity Income and Dow Jones go up and down completely randomly.
Pair Corralation between Equity Income and Dow Jones
Assuming the 90 days horizon Equity Income is expected to generate 1.11 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Equity Income Fund is 1.06 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 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,515,104 in Dow Jones Industrial on September 15, 2024 and sell it today you would earn a total of 867,702 from holding Dow Jones Industrial or generate 24.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Income Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Equity Income and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Equity Income Fund
Pair trading matchups for Equity Income
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Equity Income and Dow Jones
The main advantage of trading using opposite Equity Income and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Income 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.| Equity Income vs. William Blair Small | Equity Income vs. Boston Partners Small | Equity Income vs. Victory Rs Partners | Equity Income vs. Queens Road Small |
| Dow Jones vs. Wallbox NV | Dow Jones vs. LithiumBank Resources Corp | Dow Jones vs. Marine Products | Dow Jones vs. Arrow Financial |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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