Correlation Between Marsh McLennan and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Marsh McLennan 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 Marsh McLennan and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marsh McLennan Companies and Dow Jones Industrial, you can compare the effects of market volatilities on Marsh McLennan 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 Marsh McLennan with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marsh McLennan and Dow Jones.
Diversification Opportunities for Marsh McLennan and Dow Jones
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Marsh and Dow is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Marsh McLennan Companies 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 Marsh McLennan 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 Marsh McLennan Companies 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 Marsh McLennan i.e., Marsh McLennan and Dow Jones go up and down completely randomly.
Pair Corralation between Marsh McLennan and Dow Jones
Assuming the 90 days horizon Marsh McLennan Companies is expected to under-perform the Dow Jones. In addition to that, Marsh McLennan is 1.48 times more volatile than Dow Jones Industrial. It trades about -0.04 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.02 per unit of volatility. If you would invest 4,306,522 in Dow Jones Industrial on October 12, 2024 and sell it today you would lose (43,002) from holding Dow Jones Industrial or give up 1.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.16% |
| Values | Daily Returns |
Marsh McLennan Companies vs. Dow Jones Industrial
Performance |
| Timeline |
Marsh McLennan and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Marsh McLennan Companies
Pair trading matchups for Marsh McLennan
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Marsh McLennan and Dow Jones
The main advantage of trading using opposite Marsh McLennan and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marsh McLennan 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.| Marsh McLennan vs. NH HOTEL GROUP | Marsh McLennan vs. The Hongkong and | Marsh McLennan vs. Thai Beverage Public | Marsh McLennan vs. TYSON FOODS A |
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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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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