Correlation Between FCF Quality and Dow Jones
Can any of the company-specific risk be diversified away by investing in both FCF Quality 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 FCF Quality and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FCF Quality ETF and Dow Jones Industrial, you can compare the effects of market volatilities on FCF Quality 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 FCF Quality with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of FCF Quality and Dow Jones.
Diversification Opportunities for FCF Quality and Dow Jones
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between FCF and Dow is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding FCF Quality ETF 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 FCF Quality 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 FCF Quality ETF 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 FCF Quality i.e., FCF Quality and Dow Jones go up and down completely randomly.
Pair Corralation between FCF Quality and Dow Jones
Given the investment horizon of 90 days FCF Quality ETF is expected to generate 0.82 times more return on investment than Dow Jones. However, FCF Quality ETF is 1.22 times less risky than Dow Jones. It trades about 0.39 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.27 per unit of risk. If you would invest 6,553 in FCF Quality ETF on August 28, 2024 and sell it today you would earn a total of 461.00 from holding FCF Quality ETF or generate 7.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
FCF Quality ETF vs. Dow Jones Industrial
Performance |
| Timeline |
FCF Quality and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
FCF Quality ETF
Pair trading matchups for FCF Quality
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with FCF Quality and Dow Jones
The main advantage of trading using opposite FCF Quality and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FCF Quality 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.| FCF Quality vs. FCF International Quality | FCF Quality vs. Invesco SP 500 | FCF Quality vs. WisdomTree Multifactor | FCF Quality vs. Vanguard Momentum Factor |
| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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