Correlation Between DOW and American Funds

By analyzing existing cross correlation between DOW and American Funds Global you can compare the effects of market volatilities on DOW and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and American Funds.

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Can any of the company-specific risk be diversified away by investing in both DOW and American Funds at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing DOW and American Funds into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for DOW and American Funds

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Very poor diversification

The 3 months correlation between DOW and American is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding DOW and American Funds Global Growth P in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on American Funds Global 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Global has no effect on the direction of DOW i.e. DOW and American Funds go up and down completely randomly.

Pair Corralation between DOW and American Funds

Given the investment horizon of 30 days, DOW is expected to generate 1.11 times more return on investment than American Funds. However, DOW is 1.11 times more volatile than American Funds Global. It trades about 0.02 of its potential returns per unit of risk. American Funds Global is currently generating about 0.02 per unit of risk. If you would invest  2,540,936  in DOW on April 28, 2020 and sell it today you would earn a total of  13,891  from holding DOW or generate 0.55% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

DOW  vs.  American Funds Global Growth P

 Performance (%) 
 Predicted Return Density 
Check out your portfolio center. Please also try Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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