Correlation Between Dow Jones and Pgim Securitized

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

Diversification Opportunities for Dow Jones and Pgim Securitized

0.68

Correlation Coefficient

Dow Jones  Pgim Securitized

Poor diversification

The 3 months correlation between Dow and Pgim is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Pgim Securitized Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pgim Securitized Credit 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 Pgim Securitized. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pgim Securitized Credit has no effect on the direction of Dow Jones i.e., Dow Jones and Pgim Securitized go up and down completely randomly.

Pair Corralation between Dow Jones and Pgim Securitized

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 5.5 times more return on investment than Pgim Securitized. However, Dow Jones is 5.5 times more volatile than Pgim Securitized Credit. It trades about 0.08 of its potential returns per unit of risk. Pgim Securitized Credit is currently generating about 0.27 per unit of risk. If you would invest  3,351,765  in Dow Jones Industrial on September 28, 2024 and sell it today you would earn a total of  980,815  from holding Dow Jones Industrial or generate 29.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Dow Jones Industrial  vs.  Pgim Securitized Credit

Pair Trading with Dow Jones and Pgim Securitized

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

The idea behind Dow Jones Industrial and Pgim Securitized Credit 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.