Correlation Between 30 Year and Mini Dow

Can any of the company-specific risk be diversified away by investing in both 30 Year and Mini Dow 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 30 Year and Mini Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 30 Year Treasury and Mini Dow Jones, you can compare the effects of market volatilities on 30 Year and Mini Dow 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 30 Year with a short position of Mini Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of 30 Year and Mini Dow.

Diversification Opportunities for 30 Year and Mini Dow

0.52

Correlation Coefficient

30 Year  Mini Dow

Very weak diversification

The 3 months correlation between ZBUSD and Mini is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding 30 Year Treasury and Mini Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mini Dow Jones and 30 Year 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 30 Year Treasury are associated (or correlated) with Mini Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mini Dow Jones has no effect on the direction of 30 Year i.e., 30 Year and Mini Dow go up and down completely randomly.

Pair Corralation between 30 Year and Mini Dow

Assuming the 90 days horizon 30 Year Treasury is expected to generate 0.83 times more return on investment than Mini Dow. However, 30 Year Treasury is 1.21 times less risky than Mini Dow. It trades about -0.03 of its potential returns per unit of risk. Mini Dow Jones is currently generating about -0.04 per unit of risk. If you would invest  11,969  in 30 Year Treasury on December 1, 2024 and sell it today you would lose (131.00) from holding 30 Year Treasury or give up 1.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

30 Year Treasury  vs.  Mini Dow Jones

30 Year Treasury

Risk-Adjusted Performance

Very Weak

Over the last 90 days 30 Year Treasury has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, 30 Year is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mini Dow Jones

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mini Dow Jones has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Mini Dow is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with 30 Year and Mini Dow

The main advantage of trading using opposite 30 Year and Mini Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 30 Year position performs unexpectedly, Mini Dow 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 Mini Dow will offset losses from the drop in Mini Dow's long position.

The idea behind 30 Year Treasury and Mini Dow Jones 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.