Correlation Between DOW JONES and Cambria Global

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Can any of the company-specific risk be diversified away by investing in both DOW JONES and Cambria Global 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 DOW JONES and Cambria Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW JONES INDUSTRIAL and Cambria Global Asset, you can compare the effects of market volatilities on DOW JONES and Cambria Global 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 JONES with a short position of Cambria Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW JONES and Cambria Global.

Diversification Opportunities for DOW JONES and Cambria Global

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW JONES and Cambria is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding DOW JONES INDUSTRIAL and Cambria Global Asset in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Global Asset and DOW JONES 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 JONES INDUSTRIAL are associated (or correlated) with Cambria Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Global Asset has no effect on the direction of DOW JONES i.e., DOW JONES and Cambria Global go up and down completely randomly.
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Pair Corralation between DOW JONES and Cambria Global

Given the investment horizon of 90 days DOW JONES INDUSTRIAL is expected to generate 0.75 times more return on investment than Cambria Global. However, DOW JONES INDUSTRIAL is 1.34 times less risky than Cambria Global. It trades about 0.43 of its potential returns per unit of risk. Cambria Global Asset is currently generating about 0.1 per unit of risk. If you would invest  3,313,637  in DOW JONES INDUSTRIAL on November 2, 2022 and sell it today you would earn a total of  116,624  from holding DOW JONES INDUSTRIAL or generate 3.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy52.63%
ValuesDaily Returns

DOW JONES INDUSTRIAL  vs.  Cambria Global Asset

 Performance (%) 
       Timeline  

DOW JONES and Cambria Global Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DOW JONES and Cambria Global

The main advantage of trading using opposite DOW JONES and Cambria Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW JONES position performs unexpectedly, Cambria Global 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 Cambria Global will offset losses from the drop in Cambria Global's long position.
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The idea behind DOW JONES INDUSTRIAL and Cambria Global Asset 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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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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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