Correlation Between Dow Jones and Guggenheim Alpha
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Guggenheim Alpha 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 Guggenheim Alpha 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 Guggenheim Alpha Opportunity, you can compare the effects of market volatilities on Dow Jones and Guggenheim Alpha 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 Guggenheim Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Guggenheim Alpha.
Diversification Opportunities for Dow Jones and Guggenheim Alpha
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Guggenheim is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Guggenheim Alpha Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Alpha Opp 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 Guggenheim Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Alpha Opp has no effect on the direction of Dow Jones i.e., Dow Jones and Guggenheim Alpha go up and down completely randomly.
Pair Corralation between Dow Jones and Guggenheim Alpha
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.23 times more return on investment than Guggenheim Alpha. However, Dow Jones is 1.23 times more volatile than Guggenheim Alpha Opportunity. It trades about 0.19 of its potential returns per unit of risk. Guggenheim Alpha Opportunity is currently generating about 0.03 per unit of risk. If you would invest 4,097,497 in Dow Jones Industrial on September 4, 2024 and sell it today you would earn a total of 373,056 from holding Dow Jones Industrial or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Guggenheim Alpha Opportunity
Performance |
| Timeline |
Dow Jones and Guggenheim Alpha Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Guggenheim Alpha Opportunity
Pair trading matchups for Guggenheim Alpha
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Guggenheim Alpha as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Guggenheim Alpha's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Guggenheim Alpha's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Guggenheim Alpha Opportunity.
Pair Trading with Dow Jones and Guggenheim Alpha
The main advantage of trading using opposite Dow Jones and Guggenheim Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Guggenheim Alpha 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 Guggenheim Alpha will offset losses from the drop in Guggenheim Alpha's long position.| Dow Jones vs. Gentex | Dow Jones vs. American Axle Manufacturing | Dow Jones vs. Pearson PLC ADR | Dow Jones vs. Marine Products |
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Guggenheim Alpha as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Guggenheim Alpha's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Guggenheim Alpha's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Guggenheim Alpha Opportunity.
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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.
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