Correlation Between United States and Dow Jones
Can any of the company-specific risk be diversified away by investing in both United States 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 United States and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United States Commodity and Dow Jones Industrial, you can compare the effects of market volatilities on United States 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 United States with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Dow Jones.
Diversification Opportunities for United States and Dow Jones
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Dow is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding United States Commodity 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 United States 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 United States Commodity 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 United States i.e., United States and Dow Jones go up and down completely randomly.
Pair Corralation between United States and Dow Jones
Given the investment horizon of 90 days United States is expected to generate 1.63 times less return on investment than Dow Jones. In addition to that, United States is 1.2 times more volatile than Dow Jones Industrial. It trades about 0.04 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of volatility. If you would invest 3,418,997 in Dow Jones Industrial on September 3, 2024 and sell it today you would earn a total of 1,072,068 from holding Dow Jones Industrial or generate 31.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United States Commodity vs. Dow Jones Industrial
Performance |
| Timeline |
United States and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
United States Commodity
Pair trading matchups for United States
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with United States and Dow Jones
The main advantage of trading using opposite United States and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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.| United States vs. KraneShares Bosera MSCI | United States vs. WisdomTree Continuous Commodity | United States vs. iPath Bloomberg Commodity | United States vs. Cambria Shareholder Yield |
| 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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