Correlation Between Dividend Appreciation and Total Stock

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Can any of the company-specific risk be diversified away by investing in both Dividend Appreciation and Total Stock 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 Dividend Appreciation and Total Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dividend Appreciation ETF and Total Stock Market, you can compare the effects of market volatilities on Dividend Appreciation and Total Stock 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 Dividend Appreciation with a short position of Total Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dividend Appreciation and Total Stock.

Diversification Opportunities for Dividend Appreciation and Total Stock

0.99
  Correlation Coefficient

No risk reduction

The 3 months correlation between Dividend and Total is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Dividend Appreciation ETF and Total Stock Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Stock Market and Dividend Appreciation 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 Dividend Appreciation ETF are associated (or correlated) with Total Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Stock Market has no effect on the direction of Dividend Appreciation i.e., Dividend Appreciation and Total Stock go up and down completely randomly.

Pair Corralation between Dividend Appreciation and Total Stock

Considering the 90-day investment horizon Dividend Appreciation is expected to generate 1.17 times less return on investment than Total Stock. But when comparing it to its historical volatility, Dividend Appreciation ETF is 1.38 times less risky than Total Stock. It trades about 0.49 of its potential returns per unit of risk. Total Stock Market is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  19,118  in Total Stock Market on May 19, 2022 and sell it today you would earn a total of  2,239  from holding Total Stock Market or generate 11.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dividend Appreciation ETF  vs.  Total Stock Market

 Performance (%) 
       Timeline  
Dividend Appreciation ETF 
Dividend Performance
10 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Dividend Appreciation ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Dividend Appreciation may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Dividend Price Channel

Total Stock Market 
Total Performance
9 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Total Stock Market are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Total Stock may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Total Price Channel

Dividend Appreciation and Total Stock Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dividend Appreciation and Total Stock

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

Dividend Appreciation ETF

Pair trading matchups for Dividend Appreciation

The idea behind Dividend Appreciation ETF and Total Stock Market 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.

Total Stock Market

Pair trading matchups for Total Stock

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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