Correlation Between DOW and Focused Dynamic

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

Diversification Opportunities for DOW and Focused Dynamic

0.94
  Correlation Coefficient

Almost no diversification

The 3 months correlation between DOW and Focused is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Focused Dynamic Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Focused Dynamic Growth 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 Focused Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Focused Dynamic Growth has no effect on the direction of DOW i.e., DOW and Focused Dynamic go up and down completely randomly.
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Pair Corralation between DOW and Focused Dynamic

Given the investment horizon of 90 days DOW is expected to generate 0.56 times more return on investment than Focused Dynamic. However, DOW is 1.79 times less risky than Focused Dynamic. It trades about 0.02 of its potential returns per unit of risk. Focused Dynamic Growth is currently generating about -0.01 per unit of risk. If you would invest  2,793,102  in DOW on April 6, 2022 and sell it today you would earn a total of  259,350  from holding DOW or generate 9.29% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Focused Dynamic Growth

 Performance (%) 
      Timeline 

DOW and Focused Dynamic Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Chemocentryx vs. DOW
Microsoft Corp vs. DOW
Definitive Healthcare vs. DOW
Twitter vs. DOW
Citigroup vs. DOW
Bidvest vs. DOW
China Life vs. DOW
Otp Bank vs. DOW
Visa vs. DOW
Kimball Electrnc vs. DOW
Vmware vs. 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.

Focused Dynamic Growth

Pair trading matchups for Focused Dynamic

Otp Bank vs. Focused Dynamic
Kura Oncology vs. Focused Dynamic
Microsoft Corp vs. Focused Dynamic
Cansino Biologics vs. Focused Dynamic
Vmware vs. Focused Dynamic
Ultrashort MSCI vs. Focused Dynamic
Bidvest vs. Focused Dynamic
Ollies Bargain vs. Focused Dynamic
Kimball Electrnc vs. Focused Dynamic
China Life vs. Focused Dynamic
Definitive Healthcare vs. Focused Dynamic
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 Focused Dynamic 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. Focused Dynamic'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, Focused Dynamic'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 Focused Dynamic Growth.

Pair Trading with DOW and Focused Dynamic

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

DOW

Pair trading matchups for DOW

Otp Bank vs. DOW
Walker Dunlop vs. DOW
Vmware vs. DOW
Bidvest vs. DOW
Cansino Biologics vs. DOW
Kura Oncology vs. DOW
Ultrashort MSCI vs. DOW
Twitter vs. DOW
Ollies Bargain vs. DOW
Kimball Electrnc vs. DOW
Visa vs. 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.
The idea behind DOW and Focused Dynamic Growth 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.

Focused Dynamic Growth

Pair trading matchups for Focused Dynamic

Cansino Biologics vs. Focused Dynamic
Microsoft Corp vs. Focused Dynamic
Kimball Electrnc vs. Focused Dynamic
Ultrashort MSCI vs. Focused Dynamic
Otp Bank vs. Focused Dynamic
Dupont Denemours vs. Focused Dynamic
Visa vs. Focused Dynamic
Chemocentryx vs. Focused Dynamic
Walker Dunlop vs. Focused Dynamic
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 Focused Dynamic 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. Focused Dynamic'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, Focused Dynamic'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 Focused Dynamic Growth.
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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