Correlation Between Dow Jones and Extended Market
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Extended Market 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 Extended Market 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 Extended Market Index, you can compare the effects of market volatilities on Dow Jones and Extended Market 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 Extended Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Extended Market.
Diversification Opportunities for Dow Jones and Extended Market
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Dow and Extended is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Extended Market Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extended Market Index 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 Extended Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extended Market Index has no effect on the direction of Dow Jones i.e., Dow Jones and Extended Market go up and down completely randomly.
Pair Corralation between Dow Jones and Extended Market
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.46 times less return on investment than Extended Market. But when comparing it to its historical volatility, Dow Jones Industrial is 1.46 times less risky than Extended Market. It trades about 0.17 of its potential returns per unit of risk. Extended Market Index is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 1,970 in Extended Market Index on June 4, 2025 and sell it today you would earn a total of 212.00 from holding Extended Market Index or generate 10.76% 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. Extended Market Index
Performance |
| Timeline |
Dow Jones and Extended Market Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Extended Market Index
Pair trading matchups for Extended Market
Pair Trading with Dow Jones and Extended Market
The main advantage of trading using opposite Dow Jones and Extended Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Extended Market 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 Extended Market will offset losses from the drop in Extended Market's long position.| Dow Jones vs. Kulicke and Soffa | Dow Jones vs. Franklin Wireless Corp | Dow Jones vs. Rambler Metals and | Dow Jones vs. Aluminum of |
| Extended Market vs. Ab Bond Inflation | Extended Market vs. Ab Bond Inflation | Extended Market vs. T Rowe Price | Extended Market vs. Ab Bond Inflation |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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