Correlation Between Dow Jones and Nationwide Small

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Nationwide Small 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 Nationwide Small 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 Nationwide Small Cap, you can compare the effects of market volatilities on Dow Jones and Nationwide Small 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 Nationwide Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Nationwide Small.

Diversification Opportunities for Dow Jones and Nationwide Small

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Dow and Nationwide is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Nationwide Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Small Cap 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 Nationwide Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Small Cap has no effect on the direction of Dow Jones i.e., Dow Jones and Nationwide Small go up and down completely randomly.
    Optimize

Pair Corralation between Dow Jones and Nationwide Small

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.4 times less return on investment than Nationwide Small. But when comparing it to its historical volatility, Dow Jones Industrial is 1.68 times less risky than Nationwide Small. It trades about 0.24 of its potential returns per unit of risk. Nationwide Small Cap is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,146  in Nationwide Small Cap on September 6, 2024 and sell it today you would earn a total of  186.00  from holding Nationwide Small Cap or generate 16.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dow Jones Industrial  vs.  Nationwide Small Cap

 Performance 
       Timeline  

Dow Jones and Nationwide Small Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow Jones and Nationwide Small

The main advantage of trading using opposite Dow Jones and Nationwide Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Nationwide Small 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 Nationwide Small will offset losses from the drop in Nationwide Small's long position.
The idea behind Dow Jones Industrial and Nationwide Small Cap 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.
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

Other Complementary Tools

Content Syndication
Quickly integrate customizable finance content to your own investment portal
ETF Categories
List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments
Portfolio Analyzer
Portfolio analysis module that provides access to portfolio diagnostics and optimization engine
Price Transformation
Use Price Transformation models to analyze the depth of different equity instruments across global markets
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios