Correlation Between Themes Small and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Themes Small 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 Themes Small and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Themes Small Cap and Dow Jones Industrial, you can compare the effects of market volatilities on Themes Small 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 Themes Small with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Themes Small and Dow Jones.
Diversification Opportunities for Themes Small and Dow Jones
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Themes and Dow is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Themes Small Cap 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 Themes Small 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 Themes Small Cap 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 Themes Small i.e., Themes Small and Dow Jones go up and down completely randomly.
Pair Corralation between Themes Small and Dow Jones
Given the investment horizon of 90 days Themes Small Cap is expected to generate 1.55 times more return on investment than Dow Jones. However, Themes Small is 1.55 times more volatile than Dow Jones Industrial. It trades about 0.34 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 per unit of risk. If you would invest 3,072 in Themes Small Cap on August 26, 2024 and sell it today you would earn a total of 349.00 from holding Themes Small Cap or generate 11.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Themes Small Cap vs. Dow Jones Industrial
Performance |
| Timeline |
Themes Small and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Themes Small Cap
Pair trading matchups for Themes Small
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Themes Small and Dow Jones
The main advantage of trading using opposite Themes Small and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Themes Small 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.| Themes Small vs. Dimensional ETF Trust | Themes Small vs. Vanguard Small Cap Index | Themes Small vs. First Trust Multi Manager | Themes Small vs. Vanguard SP Small Cap |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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