Correlation Between Power Momentum and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Power Momentum 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 Power Momentum and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Power Momentum Index and Dow Jones Industrial, you can compare the effects of market volatilities on Power Momentum 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 Power Momentum with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Power Momentum and Dow Jones.
Diversification Opportunities for Power Momentum and Dow Jones
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Power and Dow is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Power Momentum 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 Power Momentum 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 Power Momentum 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 Power Momentum i.e., Power Momentum and Dow Jones go up and down completely randomly.
Pair Corralation between Power Momentum and Dow Jones
Assuming the 90 days horizon Power Momentum is expected to generate 1.01 times less return on investment than Dow Jones. In addition to that, Power Momentum is 1.0 times more volatile than Dow Jones Industrial. It trades about 0.33 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.34 per unit of volatility. If you would invest 4,205,219 in Dow Jones Industrial on September 2, 2024 and sell it today you would earn a total of 285,846 from holding Dow Jones Industrial or generate 6.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Power Momentum Index vs. Dow Jones Industrial
Performance |
| Timeline |
Power Momentum and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Power Momentum Index
Pair trading matchups for Power Momentum
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Power Momentum and Dow Jones
The main advantage of trading using opposite Power Momentum and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power Momentum 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.| Power Momentum vs. Power Income Fund | Power Momentum vs. Power Income Fund | Power Momentum vs. Power Income Fund | Power Momentum vs. Power Floating Rate |
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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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