Correlation Between Freddie Mac and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Freddie Mac 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 Freddie Mac and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Freddie Mac and Dow Jones Industrial, you can compare the effects of market volatilities on Freddie Mac 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 Freddie Mac with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freddie Mac and Dow Jones.
Diversification Opportunities for Freddie Mac and Dow Jones
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Freddie and Dow is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Freddie Mac 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 Freddie Mac 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 Freddie Mac 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 Freddie Mac i.e., Freddie Mac and Dow Jones go up and down completely randomly.
Pair Corralation between Freddie Mac and Dow Jones
Assuming the 90 days trading horizon Freddie Mac is expected to generate 12.33 times more return on investment than Dow Jones. However, Freddie Mac is 12.33 times more volatile than Dow Jones Industrial. It trades about 0.16 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.06 per unit of risk. If you would invest 325.00 in Freddie Mac on November 18, 2024 and sell it today you would earn a total of 307.00 from holding Freddie Mac or generate 94.46% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 98.41% |
Values | Daily Returns |
Freddie Mac vs. Dow Jones Industrial
Performance |
Timeline |
Freddie Mac and Dow Jones Volatility Contrast
Predicted Return Density |
Returns |
Freddie Mac
Pair trading matchups for Freddie Mac
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Freddie Mac and Dow Jones
The main advantage of trading using opposite Freddie Mac and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freddie Mac 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.Freddie Mac vs. Spire Healthcare Group | ||
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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