Correlation Between Dow Jones and Inverse Nasdaq-100

Can any of the company-specific risk be diversified away by investing in both Dow Jones and Inverse Nasdaq-100 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 Inverse Nasdaq-100 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 Inverse Nasdaq 100 Strategy, you can compare the effects of market volatilities on Dow Jones and Inverse Nasdaq-100 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 Inverse Nasdaq-100. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Inverse Nasdaq-100.

Diversification Opportunities for Dow Jones and Inverse Nasdaq-100

-0.87

Correlation Coefficient

Dow Jones  Inverse Nasdaq-100

Pay attention - limited upside

The 3 months correlation between Dow and Inverse is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Inverse Nasdaq 100 Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Nasdaq 100 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 Inverse Nasdaq-100. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Nasdaq 100 has no effect on the direction of Dow Jones i.e., Dow Jones and Inverse Nasdaq-100 go up and down completely randomly.

Pair Corralation between Dow Jones and Inverse Nasdaq-100

Assuming the 90 days horizon Dow Jones Industrial is expected to generate 0.69 times more return on investment than Inverse Nasdaq-100. However, Dow Jones Industrial is 1.44 times less risky than Inverse Nasdaq-100. It trades about 0.16 of its potential returns per unit of risk. Inverse Nasdaq 100 Strategy is currently generating about -0.06 per unit of risk. If you would invest  10,004  in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of  789.00  from holding Dow Jones Industrial or generate 7.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Dow Jones Industrial  vs.  Inverse Nasdaq 100 Strategy

Dow Jones Industrial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Jones Industrial are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Dow Jones may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Inverse Nasdaq 100

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inverse Nasdaq 100 Strategy has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Inverse Nasdaq-100 is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dow Jones and Inverse Nasdaq-100

The main advantage of trading using opposite Dow Jones and Inverse Nasdaq-100 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Inverse Nasdaq-100 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 Inverse Nasdaq-100 will offset losses from the drop in Inverse Nasdaq-100's long position.

The idea behind Dow Jones Industrial and Inverse Nasdaq 100 Strategy 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.