Correlation Between Core Plus and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Core Plus 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 Core Plus and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Core Plus Income and Dow Jones Industrial, you can compare the effects of market volatilities on Core Plus 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 Core Plus with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Core Plus and Dow Jones.
Diversification Opportunities for Core Plus and Dow Jones
Excellent diversification
The 3 months correlation between Core and Dow is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Core Plus 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 Core Plus 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 Core Plus 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 Core Plus i.e., Core Plus and Dow Jones go up and down completely randomly.
Pair Corralation between Core Plus and Dow Jones
Assuming the 90 days horizon Core Plus is expected to generate 7.4 times less return on investment than Dow Jones. But when comparing it to its historical volatility, Core Plus Income is 2.83 times less risky than Dow Jones. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 4,238,757 in Dow Jones Industrial on August 29, 2024 and sell it today you would earn a total of 233,449 from holding Dow Jones Industrial or generate 5.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Core Plus Income vs. Dow Jones Industrial
Performance |
| Timeline |
Core Plus and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Core Plus Income
Pair trading matchups for Core Plus
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Core Plus and Dow Jones
The main advantage of trading using opposite Core Plus and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Core Plus 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.| Core Plus vs. Tax Managed Large Cap | Core Plus vs. Enhanced Large Pany | Core Plus vs. T Rowe Price | Core Plus vs. T Rowe Price |
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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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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