Correlation Between Dow Jones and Jpmorgan Smartretirement

Can any of the company-specific risk be diversified away by investing in both Dow Jones and Jpmorgan Smartretirement 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 Jpmorgan Smartretirement 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 Jpmorgan Smartretirement Blend, you can compare the effects of market volatilities on Dow Jones and Jpmorgan Smartretirement 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 Jpmorgan Smartretirement. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Jpmorgan Smartretirement.

Diversification Opportunities for Dow Jones and Jpmorgan Smartretirement

0.44

Correlation Coefficient

Dow Jones  Jpmorgan Smartretirement

Very weak diversification

The 3 months correlation between Dow and Jpmorgan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Jpmorgan Smartretirement Blend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jpmorgan Smartretirement 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 Jpmorgan Smartretirement. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jpmorgan Smartretirement has no effect on the direction of Dow Jones i.e., Dow Jones and Jpmorgan Smartretirement go up and down completely randomly.

Pair Corralation between Dow Jones and Jpmorgan Smartretirement

Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Jpmorgan Smartretirement. In addition to that, Dow Jones is 1.79 times more volatile than Jpmorgan Smartretirement Blend. It trades about -0.2 of its total potential returns per unit of risk. Jpmorgan Smartretirement Blend is currently generating about -0.1 per unit of volatility. If you would invest  1,908  in Jpmorgan Smartretirement Blend on September 28, 2024 and sell it today you would lose (17.00) from holding Jpmorgan Smartretirement Blend or give up 0.89% of portfolio value over 90 days.

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

Dow Jones Industrial  vs.  Jpmorgan Smartretirement Blend

Pair Trading with Dow Jones and Jpmorgan Smartretirement

The main advantage of trading using opposite Dow Jones and Jpmorgan Smartretirement positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Jpmorgan Smartretirement 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 Jpmorgan Smartretirement will offset losses from the drop in Jpmorgan Smartretirement's long position.

The idea behind Dow Jones Industrial and Jpmorgan Smartretirement Blend 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.