Correlation Between Dow Jones and NewFunds TRACI

Can any of the company-specific risk be diversified away by investing in both Dow Jones and NewFunds TRACI 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 NewFunds TRACI 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 NewFunds TRACI 3, you can compare the effects of market volatilities on Dow Jones and NewFunds TRACI 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 NewFunds TRACI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and NewFunds TRACI.

Diversification Opportunities for Dow Jones and NewFunds TRACI

-0.04

Correlation Coefficient

Dow Jones  NewFunds TRACI

Good diversification

The 3 months correlation between Dow and NewFunds is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and NewFunds TRACI 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewFunds TRACI 3 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 NewFunds TRACI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewFunds TRACI 3 has no effect on the direction of Dow Jones i.e., Dow Jones and NewFunds TRACI go up and down completely randomly.

Pair Corralation between Dow Jones and NewFunds TRACI

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the NewFunds TRACI. In addition to that, Dow Jones is 2.33 times more volatile than NewFunds TRACI 3. It trades about -0.04 of its total potential returns per unit of risk. NewFunds TRACI 3 is currently generating about 0.08 per unit of volatility. If you would invest  351,800  in NewFunds TRACI 3 on December 23, 2024 and sell it today you would earn a total of  6,300  from holding NewFunds TRACI 3 or generate 1.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Dow Jones Industrial  vs.  NewFunds TRACI 3

Pair Trading with Dow Jones and NewFunds TRACI

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

The idea behind Dow Jones Industrial and NewFunds TRACI 3 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.