Correlation Between Blue Chip and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Blue Chip 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 Blue Chip and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Chip Growth and Dow Jones Industrial, you can compare the effects of market volatilities on Blue Chip 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 Blue Chip with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Chip and Dow Jones.
Diversification Opportunities for Blue Chip and Dow Jones
Almost no diversification
The 3 months correlation between Blue and Dow is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Blue Chip Growth 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 Blue Chip 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 Blue Chip Growth 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 Blue Chip i.e., Blue Chip and Dow Jones go up and down completely randomly.
Pair Corralation between Blue Chip and Dow Jones
Assuming the 90 days horizon Blue Chip Growth is expected to generate 2.0 times more return on investment than Dow Jones. However, Blue Chip is 2.0 times more volatile than Dow Jones Industrial. It trades about 0.04 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.07 per unit of risk. If you would invest 1,500 in Blue Chip Growth on August 24, 2024 and sell it today you would earn a total of 458.00 from holding Blue Chip Growth or generate 30.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Chip Growth vs. Dow Jones Industrial
Performance |
| Timeline |
Blue Chip and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Blue Chip Growth
Pair trading matchups for Blue Chip
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Blue Chip and Dow Jones
The main advantage of trading using opposite Blue Chip and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Chip 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.| Blue Chip vs. Calvert Moderate Allocation | Blue Chip vs. Qs Moderate Growth | Blue Chip vs. American Funds Retirement | Blue Chip vs. Pro Blend Moderate Term |
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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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