Correlation Between Mini Dow and E Mini
Can any of the company-specific risk be diversified away by investing in both Mini Dow and E Mini 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 E Mini 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 E Mini SP 500, you can compare the effects of market volatilities on Mini Dow and E Mini 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 E Mini. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mini Dow and E Mini.
Diversification Opportunities for Mini Dow and E Mini
Almost no diversification
The 3 months correlation between Mini and ESUSD is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones and E Mini SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Mini SP 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 E Mini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Mini SP has no effect on the direction of Mini Dow i.e., Mini Dow and E Mini go up and down completely randomly.
Pair Corralation between Mini Dow and E Mini
Assuming the 90 days horizon Mini Dow is expected to generate 1.32 times less return on investment than E Mini. But when comparing it to its historical volatility, Mini Dow Jones is 1.11 times less risky than E Mini. It trades about 0.11 of its potential returns per unit of risk. E Mini SP 500 is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 407,575 in E Mini SP 500 on August 26, 2024 and sell it today you would earn a total of 191,125 from holding E Mini SP 500 or generate 46.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.75% |
| Values | Daily Returns |
Mini Dow Jones vs. E Mini SP 500
Performance |
| Timeline |
| Mini Dow Jones |
| E Mini SP |
Mini Dow and E Mini Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mini Dow and E Mini
The main advantage of trading using opposite Mini Dow and E Mini positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mini Dow position performs unexpectedly, E Mini 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 E Mini will offset losses from the drop in E Mini's long position.The idea behind Mini Dow Jones and E Mini SP 500 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.| E Mini vs. Natural Gas | E Mini vs. Five Year Treasury Note | E Mini vs. Micro Gold Futures | E Mini vs. Class III Milk |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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