Correlation Between Dow Jones and Value Fund
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Value Fund 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 Value Fund 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 Value Fund Investor, you can compare the effects of market volatilities on Dow Jones and Value Fund 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 Value Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Value Fund.
Diversification Opportunities for Dow Jones and Value Fund
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Value is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Value Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Fund Investor 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 Value Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Fund Investor has no effect on the direction of Dow Jones i.e., Dow Jones and Value Fund go up and down completely randomly.
Pair Corralation between Dow Jones and Value Fund
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.58 times more return on investment than Value Fund. However, Dow Jones Industrial is 1.73 times less risky than Value Fund. It trades about -0.07 of its potential returns per unit of risk. Value Fund Investor is currently generating about -0.12 per unit of risk. If you would invest 4,491,065 in Dow Jones Industrial on November 29, 2024 and sell it today you would lose (147,753) from holding Dow Jones Industrial or give up 3.29% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.33% |
Values | Daily Returns |
Dow Jones Industrial vs. Value Fund Investor
Performance |
Timeline |
Dow Jones and Value Fund Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Value Fund Investor
Pair trading matchups for Value Fund
Pair Trading with Dow Jones and Value Fund
The main advantage of trading using opposite Dow Jones and Value Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Value Fund 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 Value Fund will offset losses from the drop in Value Fund's long position.Dow Jones vs. Starbucks | Dow Jones vs. Westinghouse Air Brake | Dow Jones vs. Finnair Oyj | Dow Jones vs. Mesa Air Group |
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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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