This module allows you to analyze existing cross correlation between DOW and Nasdaq. You can compare the effects of market volatilities on DOW and Nasdaq 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 with a short position of Nasdaq. See also your portfolio center
. Please also check ongoing floating volatility patterns of DOW
DOW vs. Nasdaq
Given the investment horizon of 30 days, DOW is expected to generate 0.7 times more return on investment than Nasdaq. However, DOW is 1.43 times less risky than Nasdaq. It trades about 0.15 of its potential returns per unit of risk. Nasdaq is currently generating about 0.06 per unit of risk. If you would invest 2,446,170 in DOW on June 21, 2018 and sell it today you would earn a total of 59,642 from holding DOW or generate 2.44% return on investment over 30 days.
Pair Corralation between DOW and Nasdaq
|Time Period||1 Month [change]|
Very poor diversification
Overlapping area represents the amount of risk that can be diversified away by holding DOW and Nasdaq in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Nasdaq and DOW 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 are associated (or correlated) with Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nasdaq has no effect on the direction of DOW i.e. DOW and Nasdaq go up and down completely randomly.
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