Correlation Between Inverse Nasdaq and Dow Jones

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

By analyzing existing cross correlation between Inverse Nasdaq 100 Strategy and Dow Jones Industrial, you can compare the effects of market volatilities on Inverse Nasdaq 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 Inverse Nasdaq with a short position of Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inverse Nasdaq and Dow Jones.

Diversification Opportunities for Inverse Nasdaq and Dow Jones

-0.78

Correlation Coefficient

Inverse Nasdaq  Dow Jones

Pay attention - limited upside

The 3 months correlation between Inverse and Dow is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Inverse Nasdaq 100 Strategy 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 Inverse Nasdaq 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 Inverse Nasdaq 100 Strategy 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 Inverse Nasdaq i.e., Inverse Nasdaq and Dow Jones go up and down completely randomly.

Pair Corralation between Inverse Nasdaq and Dow Jones

Assuming the 90 days horizon Inverse Nasdaq 100 Strategy is expected to generate 1.75 times more return on investment than Dow Jones. However, Inverse Nasdaq is 1.75 times more volatile than Dow Jones Industrial. It trades about 0.15 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about -0.25 per unit of risk. If you would invest  1,584  in Inverse Nasdaq 100 Strategy on January 30, 2024 and sell it today you would earn a total of  57.00  from holding Inverse Nasdaq 100 Strategy or generate 3.6% return on investment over 90 days.

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

Inverse Nasdaq 100 Strategy  vs.  Dow Jones Industrial

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 essential indicators, Inverse Nasdaq is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dow Jones Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Inverse Nasdaq and Dow Jones

The main advantage of trading using opposite Inverse Nasdaq and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Inverse Nasdaq 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 idea behind Inverse Nasdaq 100 Strategy and Dow Jones Industrial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.