Correlation Between Dow Jones and Vident Core

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

Diversification Opportunities for Dow Jones and Vident Core

-0.61

Correlation Coefficient

Dow Jones  Vident Core

Excellent diversification

The 3 months correlation between Dow and Vident is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Vident Core Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vident Core Bond 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 Vident Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vident Core Bond has no effect on the direction of Dow Jones i.e., Dow Jones and Vident Core go up and down completely randomly.

Pair Corralation between Dow Jones and Vident Core

Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.45 times more return on investment than Vident Core. However, Dow Jones is 2.45 times more volatile than Vident Core Bond. It trades about 0.15 of its potential returns per unit of risk. Vident Core Bond is currently generating about -0.02 per unit of risk. If you would invest  4,156,308  in Dow Jones Industrial on August 30, 2024 and sell it today you would earn a total of  315,898  from holding Dow Jones Industrial or generate 7.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Dow Jones Industrial  vs.  Vident Core Bond

Pair Trading with Dow Jones and Vident Core

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

The idea behind Dow Jones Industrial and Vident Core Bond 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.