Downside risk in Dow Jones equity markets: hedging and portfolio management during COVID-19 pandemic and the Russia–Ukraine war

Purpose This paper aims to examine the dynamic conditional correlation (DCC) and hedging ratios between Dow Jones markets and oil, gold and bitcoin. Using daily data, including the COVID-19 pandemic and the Russia–Ukraine war. We employ the DCC-generalized autoregressive conditional heteroskedasticity (GARCH) and asymmetric DCC (ADCC)-GARCH models. Design/methodology/approach DCC-GARCH and ADCC-GARCH models. Findings The most of DCCs among market pairs are positive during COVID-19 period, implying the existence of volatility spillovers (Contagion-effects). This implies the lack of additional economic gains of diversification. So, COVID-19 represents a systematic risk that resists diversification. However, during the Russia–Ukraine war the DCCs are negative for most pairs that include Oil and Gold, implying investors may benefit from portfolio-diversification. Our hedging analysis carries significant implications for investors seeking higher returns while hedging their Dow Jones portfolios: keeping their portfolios unhedged is better than hedging them. This is because Islamic stocks have the ability to mitigate risks. Originality/value Our paper may make a valuable contribution to the existing literature by examining the hedging of financial assets, including both conventional and Islamic assets, during periods of stability and crisis, such as the COVID-19 pandemic and the Russia–Ukraine war.