Correlation Between Dow Jones and Inverse Dow
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Inverse Dow 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 Inverse Dow 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 Inverse Dow 2x, you can compare the effects of market volatilities on Dow Jones and Inverse Dow 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 Inverse Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Inverse Dow.
Diversification Opportunities for Dow Jones and Inverse Dow
-1.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dow and INVERSE is -1.0. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Inverse Dow 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Dow 2x 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 Inverse Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Dow 2x has no effect on the direction of Dow Jones i.e., Dow Jones and Inverse Dow go up and down completely randomly.
Pair Corralation between Dow Jones and Inverse Dow
Assuming the 90 days horizon Dow Jones Industrial is expected to generate 0.49 times more return on investment than Inverse Dow. However, Dow Jones Industrial is 2.04 times less risky than Inverse Dow. It trades about 0.22 of its potential returns per unit of risk. Inverse Dow 2x is currently generating about -0.2 per unit of risk. If you would invest 10,195 in Dow Jones Industrial on August 27, 2024 and sell it today you would earn a total of 461.00 from holding Dow Jones Industrial or generate 4.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Inverse Dow 2x
Performance |
| Timeline |
| Dow Jones Industrial |
| Inverse Dow 2x |
Dow Jones and Inverse Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow Jones and Inverse Dow
The main advantage of trading using opposite Dow Jones and Inverse Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Inverse Dow 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 Inverse Dow will offset losses from the drop in Inverse Dow's long position.| Dow Jones vs. Basic Materials Fund | Dow Jones vs. Basic Materials Fund | Dow Jones vs. Banking Fund Class | Dow Jones vs. Basic Materials Fund |
| Inverse Dow vs. T Rowe Price | Inverse Dow vs. Dodge Global Stock | Inverse Dow vs. Us Global Investors | Inverse Dow vs. Rbb Fund Trust |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
Other Complementary Tools
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings |