Correlation Between Dow Jones and Sp Smallcap
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Sp Smallcap 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 Sp Smallcap 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 Sp Smallcap 600, you can compare the effects of market volatilities on Dow Jones and Sp Smallcap 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 Sp Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Sp Smallcap.
Diversification Opportunities for Dow Jones and Sp Smallcap
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and RYWAX is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Sp Smallcap 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sp Smallcap 600 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 Sp Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sp Smallcap 600 has no effect on the direction of Dow Jones i.e., Dow Jones and Sp Smallcap go up and down completely randomly.
Pair Corralation between Dow Jones and Sp Smallcap
Assuming the 90 days horizon Dow Jones is expected to generate 1.26 times less return on investment than Sp Smallcap. But when comparing it to its historical volatility, Dow Jones Industrial is 1.76 times less risky than Sp Smallcap. It trades about 0.24 of its potential returns per unit of risk. Sp Smallcap 600 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,427 in Sp Smallcap 600 on September 6, 2024 and sell it today you would earn a total of 786.00 from holding Sp Smallcap 600 or generate 14.48% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Dow Jones Industrial vs. Sp Smallcap 600
Performance |
Timeline |
Dow Jones Industrial |
Sp Smallcap 600 |
Dow Jones and Sp Smallcap Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Dow Jones and Sp Smallcap
The main advantage of trading using opposite Dow Jones and Sp Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Sp Smallcap 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 Sp Smallcap will offset losses from the drop in Sp Smallcap's long position.Dow Jones vs. Basic Materials Fund | Dow Jones vs. Basic Materials Fund | Dow Jones vs. Banking Fund Class | Dow Jones vs. Basic Materials Fund |
Sp Smallcap vs. Sp 500 Pure | Sp Smallcap vs. Sp Midcap 400 | Sp Smallcap vs. Sp Smallcap 600 | Sp Smallcap vs. Sp 500 Pure |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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