Correlation Between Dow Jones and Inverse Sp
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Inverse Sp 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 Sp 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 Sp 500, you can compare the effects of market volatilities on Dow Jones and Inverse Sp 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 Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Inverse Sp.
Diversification Opportunities for Dow Jones and Inverse Sp
-0.9 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Dow and Inverse is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Inverse Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Sp 500 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 Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Sp 500 has no effect on the direction of Dow Jones i.e., Dow Jones and Inverse Sp go up and down completely randomly.
Pair Corralation between Dow Jones and Inverse Sp
Assuming the 90 days horizon Dow Jones Industrial is expected to generate 0.9 times more return on investment than Inverse Sp. However, Dow Jones Industrial is 1.11 times less risky than Inverse Sp. It trades about 0.12 of its potential returns per unit of risk. Inverse Sp 500 is currently generating about -0.07 per unit of risk. If you would invest 9,344 in Dow Jones Industrial on August 24, 2024 and sell it today you would earn a total of 1,076 from holding Dow Jones Industrial or generate 11.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Inverse Sp 500
Performance |
| Timeline |
| Dow Jones Industrial |
| Inverse Sp 500 |
Dow Jones and Inverse Sp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow Jones and Inverse Sp
The main advantage of trading using opposite Dow Jones and Inverse Sp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Inverse Sp 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 Sp will offset losses from the drop in Inverse Sp's long position.| Dow Jones vs. Sp 500 Pure | Dow Jones vs. Sp Midcap 400 | Dow Jones vs. Sp 500 Pure | Dow Jones vs. Sp 500 Fund |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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