Correlation Between Mini Dow and 2 Year
Can any of the company-specific risk be diversified away by investing in both Mini Dow and 2 Year 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 2 Year 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 2 Year T Note Futures, you can compare the effects of market volatilities on Mini Dow and 2 Year 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 2 Year. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mini Dow and 2 Year.
Diversification Opportunities for Mini Dow and 2 Year
Excellent diversification
The 3 months correlation between Mini and ZTUSD is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Mini Dow Jones and 2 Year T Note Futures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 2 Year T 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 2 Year. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 2 Year T has no effect on the direction of Mini Dow i.e., Mini Dow and 2 Year go up and down completely randomly.
Pair Corralation between Mini Dow and 2 Year
Assuming the 90 days horizon Mini Dow Jones is expected to generate 5.46 times more return on investment than 2 Year. However, Mini Dow is 5.46 times more volatile than 2 Year T Note Futures. It trades about 0.15 of its potential returns per unit of risk. 2 Year T Note Futures is currently generating about 0.04 per unit of risk. If you would invest 3,313,500 in Mini Dow Jones on August 26, 2024 and sell it today you would earn a total of 1,128,200 from holding Mini Dow Jones or generate 34.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Mini Dow Jones vs. 2 Year T Note Futures
Performance |
| Timeline |
| Mini Dow Jones |
| 2 Year T |
Mini Dow and 2 Year Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Mini Dow and 2 Year
The main advantage of trading using opposite Mini Dow and 2 Year positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mini Dow position performs unexpectedly, 2 Year 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 2 Year will offset losses from the drop in 2 Year's long position.The idea behind Mini Dow Jones and 2 Year T Note Futures 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.| 2 Year vs. 30 Year Treasury | 2 Year vs. 30 Day Fed | 2 Year vs. Class III Milk | 2 Year vs. 10 Year T Note Futures |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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