Correlation Between Dow Jones and Core Alternative

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

Diversification Opportunities for Dow Jones and Core Alternative

-0.4

Correlation Coefficient

Dow Jones  Core Alternative

Very good diversification

The 3 months correlation between Dow and Core is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Core Alternative ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Core Alternative ETF 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 Core Alternative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Core Alternative ETF has no effect on the direction of Dow Jones i.e., Dow Jones and Core Alternative go up and down completely randomly.

Pair Corralation between Dow Jones and Core Alternative

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Core Alternative. In addition to that, Dow Jones is 1.04 times more volatile than Core Alternative ETF. It trades about -0.04 of its total potential returns per unit of risk. Core Alternative ETF is currently generating about 0.06 per unit of volatility. If you would invest  2,551  in Core Alternative ETF on December 22, 2024 and sell it today you would earn a total of  75.00  from holding Core Alternative ETF or generate 2.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Dow Jones Industrial  vs.  Core Alternative ETF

Pair Trading with Dow Jones and Core Alternative

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

The idea behind Dow Jones Industrial and Core Alternative ETF 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.