Correlation Between Dow Jones and TD Monthly

Can any of the company-specific risk be diversified away by investing in both Dow Jones and TD Monthly 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 Dow Jones and TD Monthly into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dow Jones Industrial and TD Monthly Income, you can compare the effects of market volatilities on Dow Jones and TD Monthly 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 Dow Jones with a short position of TD Monthly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and TD Monthly.

Diversification Opportunities for Dow Jones and TD Monthly

0.8

Correlation Coefficient

Dow Jones  TD Monthly

Very poor diversification

The 3 months correlation between Dow and 0P00016N5D is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and TD Monthly Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TD Monthly Income and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with TD Monthly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TD Monthly Income has no effect on the direction of Dow Jones i.e., Dow Jones and TD Monthly go up and down completely randomly.

Pair Corralation between Dow Jones and TD Monthly

Assuming the 90 days trading horizon Dow Jones is expected to generate 6.31 times less return on investment than TD Monthly. In addition to that, Dow Jones is 2.06 times more volatile than TD Monthly Income. It trades about 0.02 of its total potential returns per unit of risk. TD Monthly Income is currently generating about 0.24 per unit of volatility. If you would invest  1,396  in TD Monthly Income on September 15, 2024 and sell it today you would earn a total of  19.00  from holding TD Monthly Income or generate 1.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Dow Jones Industrial  vs.  TD Monthly Income

Pair Trading with Dow Jones and TD Monthly

The main advantage of trading using opposite Dow Jones and TD Monthly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, TD Monthly 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 TD Monthly will offset losses from the drop in TD Monthly's long position.

The idea behind Dow Jones Industrial and TD Monthly Income 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.

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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.