Correlation Between DOW and Big Lots

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both DOW and Big Lots 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 Big Lots into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW and Big Lots, you can compare the effects of market volatilities on DOW and Big Lots 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 Big Lots. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Big Lots.

Diversification Opportunities for DOW and Big Lots

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between DOW and Big Lots is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Big Lots in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Lots 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 Big Lots. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Lots has no effect on the direction of DOW i.e., DOW and Big Lots go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Big Lots

Given the investment horizon of 90 days DOW is expected to generate 0.29 times more return on investment than Big Lots. However, DOW is 3.49 times less risky than Big Lots. It trades about -0.08 of its potential returns per unit of risk. Big Lots is currently generating about -0.09 per unit of risk. If you would invest  3,630,238  in DOW on March 26, 2022 and sell it today you would lose (480,170)  from holding DOW or give up 13.23% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Big Lots

 Performance (%) 
      Timeline 

DOW and Big Lots Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Upstart Holdings vs. DOW
BERKSHIRE HATHAWAY vs. DOW
Li-Cycle Holdings vs. DOW
Kar Auction vs. DOW
Microchip Technology vs. DOW
Vaneck Oil vs. DOW
Genie Energy vs. DOW
SP 500 vs. DOW
SP 500 vs. DOW
CalAmp Corp vs. DOW
Weyco Gp 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 Big Lots

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

DOW

Pair trading matchups for DOW

Stealthgas vs. DOW
Quantumscape Corp vs. DOW
CalAmp Corp vs. DOW
Kar Auction vs. DOW
SP 500 vs. DOW
Li-Cycle Holdings vs. DOW
Weyco Gp vs. DOW
Ally Financial vs. DOW
Microchip Technology vs. DOW
Upstart Holdings vs. DOW
Vaneck Oil 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 Big Lots 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

Other Complementary Tools

Commodity Channel Index
Use Commodity Channel Index to analyze current equity momentum
Go
Price Ceiling Movement
Calculate and plot Price Ceiling Movement for different equity instruments
Go
Money Managers
Screen money managers from public funds and ETFs managed around the world
Go
Idea Analyzer
Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas
Go
Fundamentals Comparison
Compare fundamentals across multiple equities to find investing opportunities
Go
Portfolio Manager
State of the art Portfolio Manager to monitor and improve performance of your invested capital
Go
Portfolio Holdings
Check your current holdings and cash postion to detemine if your portfolio needs rebalancing
Go
Theme Ratings
Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go