Correlation Between DOW and Antero Resources

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

Diversification Opportunities for DOW and Antero Resources

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between DOW and Antero is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Antero Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Antero Resources Corp 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 Antero Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Antero Resources Corp has no effect on the direction of DOW i.e., DOW and Antero Resources go up and down completely randomly.
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Pair Corralation between DOW and Antero Resources

Given the investment horizon of 90 days DOW is expected to generate 1.71 times less return on investment than Antero Resources. But when comparing it to its historical volatility, DOW is 4.48 times less risky than Antero Resources. It trades about 0.29 of its potential returns per unit of risk. Antero Resources Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,471  in Antero Resources Corp on May 19, 2022 and sell it today you would earn a total of  584.00  from holding Antero Resources Corp or generate 16.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.56%
ValuesDaily Returns

DOW  vs.  Antero Resources Corp

 Performance (%) 
       Timeline  

DOW and Antero Resources Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Dupont Denemours vs. DOW
Alphabet vs. DOW
Bristol-Myers Squibb vs. DOW
ConocoPhillips vs. DOW
Devon Energy vs. DOW
T Rowe vs. DOW
Stryker Corp vs. DOW
Zimmer Biomet vs. DOW
Nio Inc vs. DOW
Otp Bank vs. DOW
Johnson Johnson vs. DOW
Lam Research 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.

Pair Trading with DOW and Antero Resources

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

DOW

Pair trading matchups for DOW

T Rowe vs. DOW
B of A vs. DOW
Citigroup vs. DOW
Lam Research vs. DOW
Main Street vs. DOW
Devon Energy vs. DOW
Stryker Corp vs. DOW
Alphabet vs. DOW
Invesco Solar vs. DOW
ConocoPhillips vs. DOW
Goldman Sachs vs. DOW
Salesforce 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 Antero Resources Corp 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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