Correlation Between Strategic Allocation and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Strategic Allocation 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 Strategic Allocation and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Strategic Allocation Servative and Dow Jones Industrial, you can compare the effects of market volatilities on Strategic Allocation 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 Strategic Allocation with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Strategic Allocation and Dow Jones.
Diversification Opportunities for Strategic Allocation and Dow Jones
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Strategic and Dow is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Strategic Allocation Servative 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 Strategic Allocation 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 Strategic Allocation Servative 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 Strategic Allocation i.e., Strategic Allocation and Dow Jones go up and down completely randomly.
Pair Corralation between Strategic Allocation and Dow Jones
Assuming the 90 days horizon Strategic Allocation is expected to generate 1.66 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Strategic Allocation Servative is 1.92 times less risky than Dow Jones. It trades about 0.13 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,815,030 in Dow Jones Industrial on August 28, 2024 and sell it today you would earn a total of 658,627 from holding Dow Jones Industrial or generate 17.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.52% |
| Values | Daily Returns |
Strategic Allocation Servative vs. Dow Jones Industrial
Performance |
| Timeline |
Strategic Allocation and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Strategic Allocation Servative
Pair trading matchups for Strategic Allocation
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Strategic Allocation and Dow Jones
The main advantage of trading using opposite Strategic Allocation and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Strategic Allocation 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.The idea behind Strategic Allocation Servative and Dow Jones Industrial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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