Correlation Between Dow Jones and NYSE Composite
Can any of the company-specific risk be diversified away by investing in both Dow Jones and NYSE Composite 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 NYSE Composite into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Islamic and NYSE Composite, you can compare the effects of market volatilities on Dow Jones and NYSE Composite 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 NYSE Composite. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and NYSE Composite.
Diversification Opportunities for Dow Jones and NYSE Composite
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and NYSE is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Islamic and NYSE Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NYSE Composite 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 Islamic are associated (or correlated) with NYSE Composite. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NYSE Composite has no effect on the direction of Dow Jones i.e., Dow Jones and NYSE Composite go up and down completely randomly.
Pair Corralation between Dow Jones and NYSE Composite
Assuming the 90 days trading horizon Dow Jones Islamic is expected to under-perform the NYSE Composite. In addition to that, Dow Jones is 1.24 times more volatile than NYSE Composite. It trades about -0.29 of its total potential returns per unit of risk. NYSE Composite is currently generating about -0.19 per unit of volatility. If you would invest 1,807,715 in NYSE Composite on January 24, 2024 and sell it today you would lose (47,496) from holding NYSE Composite or give up 2.63% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 95.24% |
Values | Daily Returns |
Dow Jones Islamic vs. NYSE Composite
Performance |
Timeline |
Dow Jones and NYSE Composite Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Islamic
Pair trading matchups for Dow Jones
NYSE Composite
Pair trading matchups for NYSE Composite
Pair Trading with Dow Jones and NYSE Composite
The main advantage of trading using opposite Dow Jones and NYSE Composite positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, NYSE Composite 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 NYSE Composite will offset losses from the drop in NYSE Composite's long position.Dow Jones vs. Hanover Foods | Dow Jones vs. Cedar Realty Trust | Dow Jones vs. CDW Corp | Dow Jones vs. BBB Foods |
NYSE Composite vs. The Wendys Co | NYSE Composite vs. Dine Brands Global | NYSE Composite vs. BJs Restaurants | NYSE Composite vs. Rave Restaurant Group |
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 the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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