Correlation Between DOW and CREDIT SUISSE

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

Diversification Opportunities for DOW and CREDIT SUISSE

0.34
  Correlation Coefficient

Weak diversification

The 3 months correlation between DOW and CREDIT is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding DOW and CREDIT SUISSE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CREDIT SUISSE GROUP 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 CREDIT SUISSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CREDIT SUISSE GROUP has no effect on the direction of DOW i.e., DOW and CREDIT SUISSE go up and down completely randomly.
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Pair Corralation between DOW and CREDIT SUISSE

Given the investment horizon of 90 days DOW is expected to generate 0.41 times more return on investment than CREDIT SUISSE. However, DOW is 2.41 times less risky than CREDIT SUISSE. It trades about -0.02 of its potential returns per unit of risk. CREDIT SUISSE GROUP is currently generating about -0.1 per unit of risk. If you would invest  3,493,427  in DOW on May 17, 2022 and sell it today you would lose (117,322)  from holding DOW or give up 3.36% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  CREDIT SUISSE GROUP

 Performance (%) 
       Timeline  

DOW and CREDIT SUISSE Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Dupont Denemours vs. DOW
Qualcomm vs. DOW
United Rentals vs. DOW
Visa vs. DOW
Boeing vs. DOW
Skyworks Solutions vs. DOW
Aspen Technology vs. DOW
Tenneco Automotive vs. DOW
Vmware vs. DOW
Sentinelone Inc vs. DOW
Equinix 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 CREDIT SUISSE

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

DOW

Pair trading matchups for DOW

Sentinelone Inc vs. DOW
United Rentals vs. DOW
Visa vs. DOW
Qualcomm vs. DOW
Vmware vs. DOW
Aspen Technology vs. DOW
Amazon vs. DOW
Boeing vs. DOW
Equinix vs. DOW
Tenneco Automotive 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 CREDIT SUISSE GROUP 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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