Correlation Between DOW and Centene Corp

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

Diversification Opportunities for DOW and Centene Corp

0.52
  Correlation Coefficient

Very weak diversification

The 24 months correlation between DOW and Centene is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Centene Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centene 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 Centene Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centene Corp has no effect on the direction of DOW i.e., DOW and Centene Corp go up and down completely randomly.
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Pair Corralation between DOW and Centene Corp

Given the investment horizon of 90 days DOW is expected to under-perform the Centene Corp. But the index apears to be less risky and, when comparing its historical volatility, DOW is 1.56 times less risky than Centene Corp. The index trades about -0.02 of its potential returns per unit of risk. The Centene Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,262  in Centene Corp on February 27, 2022 and sell it today you would earn a total of  179.00  from holding Centene Corp or generate 2.17% return on investment over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Centene Corp

 Performance (%) 
      Timeline 

DOW and Centene Corp Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
LINGYI ITECH vs. DOW
Vmware vs. DOW
Visa vs. DOW
BANK OF NINGBO vs. DOW
Otp Bank vs. DOW
Walker Dunlop vs. DOW
Microsoft Corp vs. DOW
FUJIAN AONONG vs. DOW
Meta Platforms vs. DOW
Atlassian Cls 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.

Centene Corp

Pair trading matchups for Centene Corp

Pair Trading with DOW and Centene Corp

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

DOW

Pair trading matchups for DOW

Visa vs. DOW
Microsoft Corp vs. DOW
LINGYI ITECH vs. DOW
Sentinelone Inc vs. DOW
Vmware vs. DOW
BANK OF NINGBO vs. DOW
Atlassian Cls vs. DOW
COSCO SHIPPING vs. DOW
HITHINK ROYALFLUSH vs. DOW
Otp Bank vs. DOW
Meta Platforms vs. DOW
GM 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 Centene 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.

Centene Corp

Pair trading matchups for Centene Corp

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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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