Correlation Between DOW and Altisource Asset

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

Diversification Opportunities for DOW and Altisource Asset

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between DOW and Altisource is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Altisource Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altisource Asset Man and DOW 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 are associated (or correlated) with Altisource Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altisource Asset Man has no effect on the direction of DOW i.e., DOW and Altisource Asset go up and down completely randomly.
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Pair Corralation between DOW and Altisource Asset

Given the investment horizon of 90 days DOW is expected to under-perform the Altisource Asset. But the index apears to be less risky and, when comparing its historical volatility, DOW is 3.95 times less risky than Altisource Asset. The index trades about -0.28 of its potential returns per unit of risk. The Altisource Asset Management is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,819  in Altisource Asset Management on June 30, 2022 and sell it today you would lose (119.00)  from holding Altisource Asset Management or give up 6.54% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Altisource Asset Management

 Performance (%) 
       Timeline  

DOW and Altisource Asset Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Altisource Asset Management

Pair trading matchups for Altisource Asset

Pair Trading with DOW and Altisource Asset

The main advantage of trading using opposite DOW and Altisource Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW position performs unexpectedly, Altisource Asset 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 Altisource Asset will offset losses from the drop in Altisource Asset's long position.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
The idea behind DOW and Altisource Asset Management 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.
Altisource Asset vs. Boeing Company
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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