Correlation Between Dow Jones and Templeton Asian

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

Diversification Opportunities for Dow Jones and Templeton Asian

0.25

Correlation Coefficient

Dow Jones  Templeton Asian

Modest diversification

The 3 months correlation between Dow and Templeton is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Templeton Asian Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Templeton Asian Bond 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 Templeton Asian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Templeton Asian Bond has no effect on the direction of Dow Jones i.e., Dow Jones and Templeton Asian go up and down completely randomly.

Pair Corralation between Dow Jones and Templeton Asian

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Templeton Asian. In addition to that, Dow Jones is 1.22 times more volatile than Templeton Asian Bond. It trades about -0.27 of its total potential returns per unit of risk. Templeton Asian Bond is currently generating about -0.06 per unit of volatility. If you would invest  1,799  in Templeton Asian Bond on October 9, 2024 and sell it today you would lose (11.00) from holding Templeton Asian Bond or give up 0.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

Dow Jones Industrial  vs.  Templeton Asian Bond

Pair Trading with Dow Jones and Templeton Asian

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

The idea behind Dow Jones Industrial and Templeton Asian Bond 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.