Correlation Between ALPS ETF and Dow Jones
Can any of the company-specific risk be diversified away by investing in both ALPS ETF 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 ALPS ETF and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ALPS ETF Trust and Dow Jones Industrial, you can compare the effects of market volatilities on ALPS ETF 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 ALPS ETF with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALPS ETF and Dow Jones.
Diversification Opportunities for ALPS ETF and Dow Jones
Excellent diversification
The 3 months correlation between ALPS and Dow is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ALPS ETF Trust 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 ALPS ETF 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 ALPS ETF Trust 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 ALPS ETF i.e., ALPS ETF and Dow Jones go up and down completely randomly.
Pair Corralation between ALPS ETF and Dow Jones
Given the investment horizon of 90 days ALPS ETF Trust is expected to under-perform the Dow Jones. But the etf apears to be less risky and, when comparing its historical volatility, ALPS ETF Trust is 3.49 times less risky than Dow Jones. The etf trades about -0.11 of its potential returns per unit of risk. The Dow Jones Industrial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
ALPS ETF Trust vs. Dow Jones Industrial
Performance |
| Timeline |
ALPS ETF and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
ALPS ETF Trust
Pair trading matchups for ALPS ETF
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with ALPS ETF and Dow Jones
The main advantage of trading using opposite ALPS ETF and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALPS ETF 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.| ALPS ETF vs. First Trust Low | ALPS ETF vs. First Trust Enhanced | ALPS ETF vs. First Trust Tactical | ALPS ETF vs. First Trust Managed |
| Dow Jones vs. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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