Correlation Between Nasdaq 100 and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Nasdaq 100 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 Nasdaq 100 and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nasdaq 100 Index Fund and Dow Jones Industrial, you can compare the effects of market volatilities on Nasdaq 100 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 Nasdaq 100 with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nasdaq 100 and Dow Jones.
Diversification Opportunities for Nasdaq 100 and Dow Jones
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Nasdaq and Dow is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Nasdaq 100 Index Fund 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 Nasdaq 100 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 Nasdaq 100 Index Fund 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 Nasdaq 100 i.e., Nasdaq 100 and Dow Jones go up and down completely randomly.
Pair Corralation between Nasdaq 100 and Dow Jones
Assuming the 90 days horizon Nasdaq 100 Index Fund is expected to generate 1.61 times more return on investment than Dow Jones. However, Nasdaq 100 is 1.61 times more volatile than Dow Jones Industrial. It trades about 0.1 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.08 per unit of risk. If you would invest 1,591 in Nasdaq 100 Index Fund on August 27, 2024 and sell it today you would earn a total of 1,177 from holding Nasdaq 100 Index Fund or generate 73.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nasdaq 100 Index Fund vs. Dow Jones Industrial
Performance |
| Timeline |
Nasdaq 100 and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Nasdaq 100 Index Fund
Pair trading matchups for Nasdaq 100
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Nasdaq 100 and Dow Jones
The main advantage of trading using opposite Nasdaq 100 and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nasdaq 100 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.| Nasdaq 100 vs. Mid Cap Index | Nasdaq 100 vs. Mid Cap Strategic | Nasdaq 100 vs. Valic Company I | Nasdaq 100 vs. Stock Index 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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