Correlation Between Intermediate-term and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Intermediate-term 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 Intermediate-term and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Intermediate Term Tax Free Bond and Dow Jones Industrial, you can compare the effects of market volatilities on Intermediate-term 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 Intermediate-term with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Intermediate-term and Dow Jones.
Diversification Opportunities for Intermediate-term and Dow Jones
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Intermediate-term and Dow is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Intermediate Term Tax Free Bon 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 Intermediate-term 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 Intermediate Term Tax Free Bond 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 Intermediate-term i.e., Intermediate-term and Dow Jones go up and down completely randomly.
Pair Corralation between Intermediate-term and Dow Jones
Assuming the 90 days horizon Intermediate-term is expected to generate 6.18 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Intermediate Term Tax Free Bond is 3.54 times less risky than Dow Jones. It trades about 0.07 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 3,406,633 in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of 1,084,432 from holding Dow Jones Industrial or generate 31.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Intermediate Term Tax Free Bon vs. Dow Jones Industrial
Performance |
| Timeline |
Intermediate-term and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Intermediate Term Tax Free Bond
Pair trading matchups for Intermediate-term
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Intermediate-term and Dow Jones
The main advantage of trading using opposite Intermediate-term and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Intermediate-term 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.| Intermediate-term vs. Vanguard Intermediate Term Tax Exempt | Intermediate-term vs. Vanguard Intermediate Term Tax Exempt | Intermediate-term vs. Tax Exempt Bond | Intermediate-term vs. Tax Exempt Bond |
| Dow Jones vs. Eastern Co | Dow Jones vs. Uber Technologies | Dow Jones vs. AKITA Drilling | Dow Jones vs. Chemours Co |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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