Correlation Between Inverse Government and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Inverse Government 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 Inverse Government and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Inverse Government Long and Dow Jones Industrial, you can compare the effects of market volatilities on Inverse Government 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 Inverse Government with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Government and Dow Jones.
Diversification Opportunities for Inverse Government and Dow Jones
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Inverse and Dow is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Government Long 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 Inverse Government 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 Inverse Government Long 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 Inverse Government i.e., Inverse Government and Dow Jones go up and down completely randomly.
Pair Corralation between Inverse Government and Dow Jones
Assuming the 90 days horizon Inverse Government Long is expected to under-perform the Dow Jones. In addition to that, Inverse Government is 3.72 times more volatile than Dow Jones Industrial. It trades about -0.22 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.02 per unit of volatility. If you would invest 4,375,086 in Dow Jones Industrial on September 15, 2024 and sell it today you would earn a total of 7,720 from holding Dow Jones Industrial or generate 0.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Inverse Government Long vs. Dow Jones Industrial
Performance |
| Timeline |
Inverse Government and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Inverse Government Long
Pair trading matchups for Inverse Government
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Inverse Government and Dow Jones
The main advantage of trading using opposite Inverse Government and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Government 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.| Inverse Government vs. Basic Materials Fund | Inverse Government vs. Basic Materials Fund | Inverse Government vs. Banking Fund Class | Inverse Government vs. Basic Materials 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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