Correlation Between Dow Jones and Prudential Emerging
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Prudential Emerging 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 Prudential Emerging 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 Prudential Emerging Markets, you can compare the effects of market volatilities on Dow Jones and Prudential Emerging 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 Prudential Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Prudential Emerging.
Diversification Opportunities for Dow Jones and Prudential Emerging
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Prudential is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Prudential Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Emerging 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 Prudential Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Emerging has no effect on the direction of Dow Jones i.e., Dow Jones and Prudential Emerging go up and down completely randomly.
Pair Corralation between Dow Jones and Prudential Emerging
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 2.25 times more return on investment than Prudential Emerging. However, Dow Jones is 2.25 times more volatile than Prudential Emerging Markets. It trades about 0.19 of its potential returns per unit of risk. Prudential Emerging Markets is currently generating about 0.18 per unit of risk. If you would invest 4,075,296 in Dow Jones Industrial on May 1, 2025 and sell it today you would earn a total of 388,003 from holding Dow Jones Industrial or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Prudential Emerging Markets
Performance |
| Timeline |
Dow Jones and Prudential Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Prudential Emerging Markets
Pair trading matchups for Prudential Emerging
Pair Trading with Dow Jones and Prudential Emerging
The main advantage of trading using opposite Dow Jones and Prudential Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Prudential Emerging 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 Prudential Emerging will offset losses from the drop in Prudential Emerging's long position.The idea behind Dow Jones Industrial and Prudential Emerging Markets 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.| Prudential Emerging vs. Health Care Ultrasector | Prudential Emerging vs. Allianzgi Health Sciences | Prudential Emerging vs. Alphacentric Lifesci Healthcare | Prudential Emerging vs. Invesco Global Health |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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