Correlation Between DOW and Aberdeen Ultra

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

Diversification Opportunities for DOW and Aberdeen Ultra

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between DOW and Aberdeen is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Aberdeen Ultra Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aberdeen Ultra Short 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 Aberdeen Ultra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aberdeen Ultra Short has no effect on the direction of DOW i.e., DOW and Aberdeen Ultra go up and down completely randomly.
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Pair Corralation between DOW and Aberdeen Ultra

Given the investment horizon of 90 days DOW is expected to generate 21.53 times more return on investment than Aberdeen Ultra. However, DOW is 21.53 times more volatile than Aberdeen Ultra Short. It trades about 0.22 of its potential returns per unit of risk. Aberdeen Ultra Short is currently generating about 0.1 per unit of risk. If you would invest  3,066,853  in DOW on May 16, 2022 and sell it today you would earn a total of  309,252  from holding DOW or generate 10.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy97.67%
ValuesDaily Returns

DOW  vs.  Aberdeen Ultra Short

 Performance (%) 
       Timeline  

DOW and Aberdeen Ultra Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Cto Realty vs. DOW
Ark Innovation vs. DOW
Olema Pharmaceuticals vs. DOW
Semiconductor Bear vs. DOW
Horizon Therapeutics vs. DOW
Nike vs. DOW
Prog Hldgs vs. DOW
Rolls Royce vs. DOW
Universal Health 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.

Aberdeen Ultra Short

Pair trading matchups for Aberdeen Ultra

Pair Trading with DOW and Aberdeen Ultra

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

DOW

Pair trading matchups for DOW

Essential Properties vs. DOW
Prog Hldgs vs. DOW
Horizon Therapeutics vs. DOW
Rolls Royce vs. DOW
Olema Pharmaceuticals vs. DOW
Semiconductor Bear vs. DOW
Cto Realty vs. DOW
Ark Innovation 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 Aberdeen Ultra Short 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.

Aberdeen Ultra Short

Pair trading matchups for Aberdeen Ultra

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..

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