Correlation Between Dow Jones and Thornburg New

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

Diversification Opportunities for Dow Jones and Thornburg New

0.42

Correlation Coefficient

Dow Jones  Thornburg New

Very weak diversification

The 3 months correlation between Dow and Thornburg is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Thornburg New Mexico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg New Mexico 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 Thornburg New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg New Mexico has no effect on the direction of Dow Jones i.e., Dow Jones and Thornburg New go up and down completely randomly.

Pair Corralation between Dow Jones and Thornburg New

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Thornburg New. In addition to that, Dow Jones is 4.44 times more volatile than Thornburg New Mexico. It trades about -0.23 of its total potential returns per unit of risk. Thornburg New Mexico is currently generating about -0.42 per unit of volatility. If you would invest  1,246  in Thornburg New Mexico on October 11, 2024 and sell it today you would lose (18.00) from holding Thornburg New Mexico or give up 1.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Dow Jones Industrial  vs.  Thornburg New Mexico

Pair Trading with Dow Jones and Thornburg New

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

The idea behind Dow Jones Industrial and Thornburg New Mexico 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..