Correlation Between Dow Jones and Pacer Benchmark
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Pacer Benchmark 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 Pacer Benchmark 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 Pacer Benchmark Industrial, you can compare the effects of market volatilities on Dow Jones and Pacer Benchmark 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 Pacer Benchmark. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Pacer Benchmark.
Diversification Opportunities for Dow Jones and Pacer Benchmark
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Dow and Pacer is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Pacer Benchmark Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacer Benchmark Indu 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 Pacer Benchmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacer Benchmark Indu has no effect on the direction of Dow Jones i.e., Dow Jones and Pacer Benchmark go up and down completely randomly.
Pair Corralation between Dow Jones and Pacer Benchmark
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Pacer Benchmark. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.27 times less risky than Pacer Benchmark. The index trades about -0.01 of its potential returns per unit of risk. The Pacer Benchmark Industrial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,495 in Pacer Benchmark Industrial on December 28, 2024 and sell it today you would earn a total of 154.00 from holding Pacer Benchmark Industrial or generate 4.41% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Dow Jones Industrial vs. Pacer Benchmark Industrial
Performance |
Timeline |
Dow Jones and Pacer Benchmark Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pacer Benchmark Industrial
Pair trading matchups for Pacer Benchmark
Pair Trading with Dow Jones and Pacer Benchmark
The main advantage of trading using opposite Dow Jones and Pacer Benchmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Pacer Benchmark 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 Pacer Benchmark will offset losses from the drop in Pacer Benchmark's long position.Dow Jones vs. PennantPark Investment | Dow Jones vs. Western Asset Investment | Dow Jones vs. Yoshitsu Co Ltd | Dow Jones vs. Black Hills |
Pacer Benchmark vs. Pacer Benchmark Data | Pacer Benchmark vs. US Diversified Real | Pacer Benchmark vs. Nuveen Short Term REIT |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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