Correlation Between Madison Square and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Madison Square 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 Madison Square and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Madison Square Garden and Dow Jones Industrial, you can compare the effects of market volatilities on Madison Square 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 Madison Square with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Square and Dow Jones.
Diversification Opportunities for Madison Square and Dow Jones
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Madison and Dow is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Madison Square Garden 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 Madison Square 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 Madison Square Garden 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 Madison Square i.e., Madison Square and Dow Jones go up and down completely randomly.
Pair Corralation between Madison Square and Dow Jones
Given the investment horizon of 90 days Madison Square Garden is expected to generate 1.95 times more return on investment than Dow Jones. However, Madison Square is 1.95 times more volatile than Dow Jones Industrial. It trades about 0.05 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of risk. If you would invest 16,474 in Madison Square Garden on August 26, 2024 and sell it today you would earn a total of 6,509 from holding Madison Square Garden or generate 39.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Madison Square Garden vs. Dow Jones Industrial
Performance |
| Timeline |
Madison Square and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Madison Square Garden
Pair trading matchups for Madison Square
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Madison Square and Dow Jones
The main advantage of trading using opposite Madison Square and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Madison Square 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.| Madison Square vs. Atlanta Braves Holdings, | Madison Square vs. Liberty Media | Madison Square vs. Liberty Media | Madison Square vs. Atlanta Braves Holdings, |
| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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