Correlation Between Dow Jones and Inflation-protected
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Inflation-protected 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 Inflation-protected 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 Inflation Protected Bond Fund, you can compare the effects of market volatilities on Dow Jones and Inflation-protected 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 Inflation-protected. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Inflation-protected.
Diversification Opportunities for Dow Jones and Inflation-protected
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Inflation-protected is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Inflation Protected Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protected 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 Inflation-protected. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protected has no effect on the direction of Dow Jones i.e., Dow Jones and Inflation-protected go up and down completely randomly.
Pair Corralation between Dow Jones and Inflation-protected
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 1.4 times more return on investment than Inflation-protected. However, Dow Jones is 1.4 times more volatile than Inflation Protected Bond Fund. It trades about 0.12 of its potential returns per unit of risk. Inflation Protected Bond Fund is currently generating about 0.09 per unit of risk. If you would invest 4,540,086 in Dow Jones Industrial on September 5, 2025 and sell it today you would earn a total of 248,204 from holding Dow Jones Industrial or generate 5.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Inflation Protected Bond Fund
Performance |
| Timeline |
Dow Jones and Inflation-protected Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Inflation Protected Bond Fund
Pair trading matchups for Inflation-protected
Pair Trading with Dow Jones and Inflation-protected
The main advantage of trading using opposite Dow Jones and Inflation-protected positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Inflation-protected 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 Inflation-protected will offset losses from the drop in Inflation-protected's long position.| Dow Jones vs. Intelligent Protection Management | Dow Jones vs. Hooker Furniture | Dow Jones vs. Apollo Global Management | Dow Jones vs. Taylor Morn Home |
| Inflation-protected vs. Calvert Global Energy | Inflation-protected vs. Blackrock All Cap Energy | Inflation-protected vs. Jennison Natural Resources | Inflation-protected vs. World Energy Fund |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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