Correlation Between Dow Jones and Nasdaq-100(r)
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Nasdaq-100(r) 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 Nasdaq-100(r) 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 Nasdaq 100 2x Strategy, you can compare the effects of market volatilities on Dow Jones and Nasdaq-100(r) 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 Nasdaq-100(r). Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Nasdaq-100(r).
Diversification Opportunities for Dow Jones and Nasdaq-100(r)
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Nasdaq-100(r) is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Nasdaq 100 2x Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq 100 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 Nasdaq-100(r). Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq 100 2x has no effect on the direction of Dow Jones i.e., Dow Jones and Nasdaq-100(r) go up and down completely randomly.
Pair Corralation between Dow Jones and Nasdaq-100(r)
Assuming the 90 days horizon Dow Jones is expected to generate 3.77 times less return on investment than Nasdaq-100(r). But when comparing it to its historical volatility, Dow Jones Industrial is 3.14 times less risky than Nasdaq-100(r). It trades about 0.08 of its potential returns per unit of risk. Nasdaq 100 2x Strategy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 23,627 in Nasdaq 100 2x Strategy on November 1, 2024 and sell it today you would earn a total of 33,069 from holding Nasdaq 100 2x Strategy or generate 139.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. Nasdaq 100 2x Strategy
Performance |
| Timeline |
| Dow Jones Industrial |
| Nasdaq 100 2x |
Dow Jones and Nasdaq-100(r) Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow Jones and Nasdaq-100(r)
The main advantage of trading using opposite Dow Jones and Nasdaq-100(r) positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Nasdaq-100(r) 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 Nasdaq-100(r) will offset losses from the drop in Nasdaq-100(r)'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 |
| Nasdaq-100(r) vs. Nasdaq 100 2x Strategy | Nasdaq-100(r) vs. Direxion Monthly Nasdaq 100 | Nasdaq-100(r) vs. Ultranasdaq 100 Profund Ultranasdaq 100 | Nasdaq-100(r) vs. Nasdaq 100 2x Strategy |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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