Correlation Between Broad Cap and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Broad Cap 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 Broad Cap and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Broad Cap Value and Dow Jones Industrial, you can compare the effects of market volatilities on Broad Cap 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 Broad Cap with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Broad Cap and Dow Jones.
Diversification Opportunities for Broad Cap and Dow Jones
Very poor diversification
The 3 months correlation between Broad and Dow is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Broad Cap Value 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 Broad Cap 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 Broad Cap Value 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 Broad Cap i.e., Broad Cap and Dow Jones go up and down completely randomly.
Pair Corralation between Broad Cap and Dow Jones
Assuming the 90 days horizon Broad Cap is expected to generate 1.34 times less return on investment than Dow Jones. In addition to that, Broad Cap is 1.14 times more volatile than Dow Jones Industrial. It trades about 0.06 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.09 per unit of volatility. If you would invest 3,265,670 in Dow Jones Industrial on November 19, 2024 and sell it today you would earn a total of 1,188,938 from holding Dow Jones Industrial or generate 36.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Broad Cap Value vs. Dow Jones Industrial
Performance |
| Timeline |
Broad Cap and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Broad Cap Value
Pair trading matchups for Broad Cap
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Broad Cap and Dow Jones
The main advantage of trading using opposite Broad Cap and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broad Cap 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.| Broad Cap vs. Allianzgi Diversified Income | Broad Cap vs. Vanguard Diversified Equity | Broad Cap vs. Stone Ridge Diversified | Broad Cap vs. Diversified Bond Fund |
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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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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