Correlation Between Dow Jones and COMPASS PATHW

Can any of the company-specific risk be diversified away by investing in both Dow Jones and COMPASS PATHW 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 COMPASS PATHW 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 COMPASS PATHW SPADR, you can compare the effects of market volatilities on Dow Jones and COMPASS PATHW 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 COMPASS PATHW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and COMPASS PATHW.

Diversification Opportunities for Dow Jones and COMPASS PATHW

-0.51

Correlation Coefficient

Dow Jones  COMPASS PATHW

Excellent diversification

The 3 months correlation between Dow and COMPASS is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and COMPASS PATHW SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPASS PATHW SPADR 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 COMPASS PATHW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPASS PATHW SPADR has no effect on the direction of Dow Jones i.e., Dow Jones and COMPASS PATHW go up and down completely randomly.

Pair Corralation between Dow Jones and COMPASS PATHW

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the COMPASS PATHW. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 8.4 times less risky than COMPASS PATHW. The index trades about -0.24 of its potential returns per unit of risk. The COMPASS PATHW SPADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  424.00  in COMPASS PATHW SPADR on October 10, 2024 and sell it today you would lose (4.00) from holding COMPASS PATHW SPADR or give up 0.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	81.82%
Values	Daily Returns

Dow Jones Industrial  vs.  COMPASS PATHW SPADR

Pair Trading with Dow Jones and COMPASS PATHW

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

The idea behind Dow Jones Industrial and COMPASS PATHW SPADR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.