Correlation Between Mini Dow and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Mini Dow 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 Mini Dow and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Mini Dow Jones and Dow Jones Industrial, you can compare the effects of market volatilities on Mini Dow 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 Mini Dow with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mini Dow and Dow Jones.
Diversification Opportunities for Mini Dow and Dow Jones
No risk reduction
The 3 months correlation between Mini and Dow is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones 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 Mini Dow 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 Mini Dow Jones 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 Mini Dow i.e., Mini Dow and Dow Jones go up and down completely randomly.
Pair Corralation between Mini Dow and Dow Jones
Assuming the 90 days horizon Mini Dow is expected to generate 1.04 times less return on investment than Dow Jones. In addition to that, Mini Dow is 1.0 times more volatile than Dow Jones Industrial. It trades about 0.23 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 per unit of volatility. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mini Dow Jones vs. Dow Jones Industrial
Performance |
| Timeline |
Mini Dow and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
Mini Dow Jones
Pair trading matchups for Mini Dow
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Mini Dow and Dow Jones
The main advantage of trading using opposite Mini Dow and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mini Dow 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 Mini Dow Jones 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. Vistra Energy Corp | Dow Jones vs. Fluence Energy | Dow Jones vs. Old Republic International | Dow Jones vs. Empresa Distribuidora y |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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