Correlation Between Dow Jones and Fabxx
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Fabxx 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 Dow Jones and Fabxx into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Fabxx, you can compare the effects of market volatilities on Dow Jones and Fabxx 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 Dow Jones with a short position of Fabxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Fabxx.
Diversification Opportunities for Dow Jones and Fabxx
Very good diversification
The 3 months correlation between Dow and Fabxx is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Fabxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabxx and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Fabxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabxx has no effect on the direction of Dow Jones i.e., Dow Jones and Fabxx go up and down completely randomly.
Pair Corralation between Dow Jones and Fabxx
Assuming the 90 days horizon Dow Jones Industrial is expected to generate 0.22 times more return on investment than Fabxx. However, Dow Jones Industrial is 4.6 times less risky than Fabxx. It trades about 0.36 of its potential returns per unit of risk. Fabxx is currently generating about -0.13 per unit of risk. If you would invest 10,043 in Dow Jones Industrial on September 1, 2024 and sell it today you would earn a total of 719.00 from holding Dow Jones Industrial or generate 7.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Fabxx
Performance |
| Timeline |
| Dow Jones Industrial |
| Fabxx |
Dow Jones and Fabxx Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow Jones and Fabxx
The main advantage of trading using opposite Dow Jones and Fabxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Fabxx 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 Fabxx will offset losses from the drop in Fabxx's long position.| Dow Jones vs. Maryland Tax Free Bond | Dow Jones vs. Multisector Bond Sma | Dow Jones vs. Ab Bond Inflation | Dow Jones vs. Thrivent Income Fund |
| Fabxx vs. Vanguard Financials Index | Fabxx vs. Blackrock Financial Institutions | Fabxx vs. Financials Ultrasector Profund | Fabxx vs. Mesirow Financial Small |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
Other Complementary Tools
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Aroon Oscillator Analyze current equity momentum using Aroon Oscillator and other momentum ratios | |
| Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated |