Correlation Between E Mini and Mini Dow

Can any of the company-specific risk be diversified away by investing in both E Mini and Mini Dow 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 E Mini and Mini Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between E Mini SP 500 and Mini Dow Jones, you can compare the effects of market volatilities on E Mini and Mini Dow 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 E Mini with a short position of Mini Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of E Mini and Mini Dow.

Diversification Opportunities for E Mini and Mini Dow

0.96

Correlation Coefficient

E Mini  Mini Dow

Almost no diversification

The 3 months correlation between ESUSD and Mini is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding E Mini SP 500 and Mini Dow Jones in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mini Dow Jones and E Mini 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 E Mini SP 500 are associated (or correlated) with Mini Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mini Dow Jones has no effect on the direction of E Mini i.e., E Mini and Mini Dow go up and down completely randomly.

Pair Corralation between E Mini and Mini Dow

Assuming the 90 days horizon E Mini is expected to generate 2.23 times less return on investment than Mini Dow. But when comparing it to its historical volatility, E Mini SP 500 is 1.12 times less risky than Mini Dow. It trades about 0.13 of its potential returns per unit of risk. Mini Dow Jones is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  4,244,700  in Mini Dow Jones on August 30, 2024 and sell it today you would earn a total of  239,200  from holding Mini Dow Jones or generate 5.64% return on investment over 90 days.

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

E Mini SP 500  vs.  Mini Dow Jones

E Mini SP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in E Mini SP 500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, E Mini is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mini Dow Jones

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mini Dow Jones are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Mini Dow may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with E Mini and Mini Dow

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

The idea behind E Mini SP 500 and Mini Dow Jones 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.