Correlation Between SP Funds and Dow Jones
Can any of the company-specific risk be diversified away by investing in both SP Funds and Dow Jones 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 SP Funds and Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP Funds Dow and Dow Jones Industrial, you can compare the effects of market volatilities on SP Funds and Dow Jones 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 SP Funds with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Funds and Dow Jones.
Diversification Opportunities for SP Funds and Dow Jones
Very good diversification
The 3 months correlation between SPSK and Dow is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding SP Funds Dow and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial and SP Funds 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 SP Funds Dow are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of SP Funds i.e., SP Funds and Dow Jones go up and down completely randomly.
Pair Corralation between SP Funds and Dow Jones
Given the investment horizon of 90 days SP Funds Dow is expected to generate 0.4 times more return on investment than Dow Jones. However, SP Funds Dow is 2.49 times less risky than Dow Jones. It trades about 0.1 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.04 per unit of risk. If you would invest 1,762 in SP Funds Dow on December 28, 2024 and sell it today you would earn a total of 38.00 from holding SP Funds Dow or generate 2.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SP Funds Dow vs. Dow Jones Industrial
Performance |
| Timeline |
SP Funds and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
SP Funds Dow
Pair trading matchups for SP Funds
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP Funds as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP Funds' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP Funds' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP Funds Dow.
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with SP Funds and Dow Jones
The main advantage of trading using opposite SP Funds and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP Funds position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP Funds as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP Funds' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP Funds' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP Funds Dow.
| Dow Jones vs. Perseus Mining Limited | Dow Jones vs. Falcon Metals Limited | Dow Jones vs. Broadstone Net Lease | Dow Jones vs. PennantPark 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
Other Complementary Tools
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Companies Directory Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals |