Correlation Between Largecap Value and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Largecap Value 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 Largecap Value and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Largecap Value Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Largecap Value 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 Largecap Value with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Largecap Value and Dow Jones.
Diversification Opportunities for Largecap Value and Dow Jones
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Largecap and Dow is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Largecap Value 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 Largecap Value 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 Largecap Value 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 Largecap Value i.e., Largecap Value and Dow Jones go up and down completely randomly.
Pair Corralation between Largecap Value and Dow Jones
Assuming the 90 days horizon Largecap Value is expected to generate 1.18 times less return on investment than Dow Jones. In addition to that, Largecap Value is 1.02 times more volatile than Dow Jones Industrial. It trades about 0.1 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.11 per unit of volatility. If you would invest 3,446,369 in Dow Jones Industrial on September 12, 2024 and sell it today you would earn a total of 978,414 from holding Dow Jones Industrial or generate 28.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Largecap Value Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Largecap Value and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Largecap Value Fund
Pair trading matchups for Largecap Value
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Largecap Value and Dow Jones
The main advantage of trading using opposite Largecap Value and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Largecap Value 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.| Largecap Value vs. Short Duration Inflation | Largecap Value vs. Federated Hermes Inflation | Largecap Value vs. Guidepath Managed Futures | Largecap Value vs. Ab Bond Inflation |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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