Correlation Between Dow Jones and Multifactor

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

Diversification Opportunities for Dow Jones and Multifactor

0.9

Correlation Coefficient

Dow Jones  Multifactor

Almost no diversification

The 3 months correlation between Dow and Multifactor is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Multifactor Equity Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multifactor Equity 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 Multifactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multifactor Equity has no effect on the direction of Dow Jones i.e., Dow Jones and Multifactor go up and down completely randomly.

Pair Corralation between Dow Jones and Multifactor

Assuming the 90 days trading horizon Dow Jones is expected to generate 1.45 times less return on investment than Multifactor. In addition to that, Dow Jones is 1.12 times more volatile than Multifactor Equity Fund. It trades about 0.13 of its total potential returns per unit of risk. Multifactor Equity Fund is currently generating about 0.21 per unit of volatility. If you would invest  1,626  in Multifactor Equity Fund on July 4, 2025 and sell it today you would earn a total of  113.00  from holding Multifactor Equity Fund or generate 6.95% return on investment over 90 days.

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

Dow Jones Industrial  vs.  Multifactor Equity Fund

Pair Trading with Dow Jones and Multifactor

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

The idea behind Dow Jones Industrial and Multifactor Equity Fund 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..