Correlation Between Dow Jones and International Equity
Can any of the company-specific risk be diversified away by investing in both Dow Jones and International Equity 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 International Equity 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 International Equity Portfolio, you can compare the effects of market volatilities on Dow Jones and International Equity 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 International Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and International Equity.
Diversification Opportunities for Dow Jones and International Equity
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Dow and International is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of Dow Jones i.e., Dow Jones and International Equity go up and down completely randomly.
Pair Corralation between Dow Jones and International Equity
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.22 times more return on investment than International Equity. However, Dow Jones Industrial is 4.54 times less risky than International Equity. It trades about 0.04 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.15 per unit of risk. If you would invest 4,220,822 in Dow Jones Industrial on September 24, 2024 and sell it today you would earn a total of 69,873 from holding Dow Jones Industrial or generate 1.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 98.46% |
Values | Daily Returns |
Dow Jones Industrial vs. International Equity Portfolio
Performance |
Timeline |
Dow Jones and International Equity Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
International Equity Portfolio
Pair trading matchups for International Equity
Pair Trading with Dow Jones and International Equity
The main advantage of trading using opposite Dow Jones and International Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, International Equity 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 International Equity will offset losses from the drop in International Equity's long position.Dow Jones vs. Teleflex Incorporated | Dow Jones vs. Sonida Senior Living | Dow Jones vs. Avadel Pharmaceuticals PLC | Dow Jones vs. Cardinal Health |
International Equity vs. Emerging Markets Equity | International Equity vs. Global Fixed Income | International Equity vs. Global Fixed Income | International Equity vs. Global Fixed Income |
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 Stocks Directory module to find actively traded stocks across global markets.
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