Correlation Between Value Line and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Value Line 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 Value Line and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Value Line Income and Dow Jones Industrial, you can compare the effects of market volatilities on Value Line 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 Value Line with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Value Line and Dow Jones.
Diversification Opportunities for Value Line and Dow Jones
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Value and Dow is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Value Line Income 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 Value Line 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 Value Line Income 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 Value Line i.e., Value Line and Dow Jones go up and down completely randomly.
Pair Corralation between Value Line and Dow Jones
Assuming the 90 days horizon Value Line is expected to generate 1.34 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Value Line Income is 1.02 times less risky than Dow Jones. It trades about 0.21 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 4,223,305 in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of 248,901 from holding Dow Jones Industrial or generate 5.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Value Line Income vs. Dow Jones Industrial
Performance |
| Timeline |
Value Line and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Value Line Income
Pair trading matchups for Value Line
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Value Line and Dow Jones
The main advantage of trading using opposite Value Line and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Value Line 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.The idea behind Value Line Income and Dow Jones Industrial pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Dow Jones vs. Kaltura | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. US Global Investors | Dow Jones vs. Analog Devices |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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