Correlation Between Energy Fund and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Energy Fund 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 Energy Fund and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Fund Class and Dow Jones Industrial, you can compare the effects of market volatilities on Energy Fund 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 Energy Fund with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Fund and Dow Jones.
Diversification Opportunities for Energy Fund and Dow Jones
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Dow is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Energy Fund Class 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 Energy Fund 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 Energy Fund Class 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 Energy Fund i.e., Energy Fund and Dow Jones go up and down completely randomly.
Pair Corralation between Energy Fund and Dow Jones
Assuming the 90 days horizon Energy Fund Class is expected to under-perform the Dow Jones. In addition to that, Energy Fund is 1.57 times more volatile than Dow Jones Industrial. It trades about -0.01 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.12 per unit of volatility. If you would invest 3,889,280 in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of 601,785 from holding Dow Jones Industrial or generate 15.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Fund Class vs. Dow Jones Industrial
Performance |
| Timeline |
Energy Fund and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Energy Fund Class
Pair trading matchups for Energy Fund
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Energy Fund and Dow Jones
The main advantage of trading using opposite Energy Fund and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Fund 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.| Energy Fund vs. Pace High Yield | Energy Fund vs. Metropolitan West High | Energy Fund vs. Ab High Income | Energy Fund vs. Multimanager Lifestyle Aggressive |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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