Correlation Between New World and Dow Jones
Can any of the company-specific risk be diversified away by investing in both New World 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 New World and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New World Fund and Dow Jones Industrial, you can compare the effects of market volatilities on New World 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 New World with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Dow Jones.
Diversification Opportunities for New World and Dow Jones
Modest diversification
The 3 months correlation between New and Dow is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding New World 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 New World 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 New World 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 New World i.e., New World and Dow Jones go up and down completely randomly.
Pair Corralation between New World and Dow Jones
Assuming the 90 days horizon New World Fund is expected to under-perform the Dow Jones. But the mutual fund apears to be less risky and, when comparing its historical volatility, New World Fund is 1.01 times less risky than Dow Jones. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Dow Jones Industrial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,124,052 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 305,599 from holding Dow Jones Industrial or generate 7.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
New World Fund vs. Dow Jones Industrial
Performance |
| Timeline |
New World and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
New World Fund
Pair trading matchups for New World
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with New World and Dow Jones
The main advantage of trading using opposite New World and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World 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.| New World vs. California Bond Fund | New World vs. Chartwell Short Duration | New World vs. Rbc Bluebay Global | New World vs. Bbh Intermediate Municipal |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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