Correlation Between Preferred Securities and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Preferred Securities 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 Preferred Securities and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Preferred Securities Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Preferred Securities 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 Preferred Securities with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preferred Securities and Dow Jones.
Diversification Opportunities for Preferred Securities and Dow Jones
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Preferred and Dow is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Securities 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 Preferred Securities 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 Preferred Securities 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 Preferred Securities i.e., Preferred Securities and Dow Jones go up and down completely randomly.
Pair Corralation between Preferred Securities and Dow Jones
Assuming the 90 days horizon Preferred Securities Fund is expected to under-perform the Dow Jones. But the mutual fund apears to be less risky and, when comparing its historical volatility, Preferred Securities Fund is 6.28 times less risky than Dow Jones. The mutual fund trades about -0.15 of its potential returns per unit of risk. The Dow Jones Industrial is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 4,231,300 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 254,731 from holding Dow Jones Industrial or generate 6.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Preferred Securities Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Preferred Securities and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Preferred Securities Fund
Pair trading matchups for Preferred Securities
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Preferred Securities and Dow Jones
The main advantage of trading using opposite Preferred Securities and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Preferred Securities 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.| Preferred Securities vs. Origin Emerging Markets | Preferred Securities vs. T Rowe Price | Preferred Securities vs. Pnc Emerging Markets | Preferred Securities vs. Barings Emerging Markets |
| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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