Correlation Between Dow Jones and GEAR4MUSIC

Can any of the company-specific risk be diversified away by investing in both Dow Jones and GEAR4MUSIC 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 GEAR4MUSIC 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 GEAR4MUSIC LS 10, you can compare the effects of market volatilities on Dow Jones and GEAR4MUSIC 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 GEAR4MUSIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and GEAR4MUSIC.

Diversification Opportunities for Dow Jones and GEAR4MUSIC

0.87

Correlation Coefficient

Dow Jones  GEAR4MUSIC

Very poor diversification

The 3 months correlation between Dow and GEAR4MUSIC is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and GEAR4MUSIC LS 10 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEAR4MUSIC LS 10 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 GEAR4MUSIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEAR4MUSIC LS 10 has no effect on the direction of Dow Jones i.e., Dow Jones and GEAR4MUSIC go up and down completely randomly.

Pair Corralation between Dow Jones and GEAR4MUSIC

Assuming the 90 days trading horizon Dow Jones is expected to generate 3.88 times less return on investment than GEAR4MUSIC. But when comparing it to its historical volatility, Dow Jones Industrial is 5.48 times less risky than GEAR4MUSIC. It trades about 0.25 of its potential returns per unit of risk. GEAR4MUSIC LS 10 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  166.00  in GEAR4MUSIC LS 10 on April 24, 2025 and sell it today you would earn a total of  84.00  from holding GEAR4MUSIC LS 10 or generate 50.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Dow Jones Industrial  vs.  GEAR4MUSIC LS 10

Pair Trading with Dow Jones and GEAR4MUSIC

The main advantage of trading using opposite Dow Jones and GEAR4MUSIC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, GEAR4MUSIC 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 GEAR4MUSIC will offset losses from the drop in GEAR4MUSIC's long position.

The idea behind Dow Jones Industrial and GEAR4MUSIC LS 10 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.