Correlation Between Smallcap Growth and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Smallcap Growth 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 Smallcap Growth and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smallcap Growth Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Smallcap Growth 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 Smallcap Growth with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smallcap Growth and Dow Jones.
Diversification Opportunities for Smallcap Growth and Dow Jones
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smallcap and Dow is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Smallcap Growth 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 Smallcap Growth 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 Smallcap Growth 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 Smallcap Growth i.e., Smallcap Growth and Dow Jones go up and down completely randomly.
Pair Corralation between Smallcap Growth and Dow Jones
Assuming the 90 days horizon Smallcap Growth Fund is expected to generate 1.75 times more return on investment than Dow Jones. However, Smallcap Growth is 1.75 times more volatile than Dow Jones Industrial. It trades about 0.26 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.37 per unit of risk. If you would invest 1,073 in Smallcap Growth Fund on September 5, 2024 and sell it today you would earn a total of 77.00 from holding Smallcap Growth Fund or generate 7.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 77.27% |
| Values | Daily Returns |
Smallcap Growth Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Smallcap Growth and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Smallcap Growth Fund
Pair trading matchups for Smallcap Growth
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Smallcap Growth and Dow Jones
The main advantage of trading using opposite Smallcap Growth and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smallcap Growth 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.| Smallcap Growth vs. Blackrock Conservative Prprdptfinstttnl | Smallcap Growth vs. Fidelity Advisor Diversified | Smallcap Growth vs. Evaluator Conservative Rms | Smallcap Growth vs. Adams Diversified Equity |
| Dow Jones vs. Shake Shack | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. Dave Busters Entertainment | Dow Jones vs. Meli Hotels International |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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