Correlation Between DOW and Carvana Co

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

Diversification Opportunities for DOW and Carvana Co

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Carvana is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Carvana Co Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana Co Cl 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 Carvana Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana Co Cl has no effect on the direction of DOW i.e., DOW and Carvana Co go up and down completely randomly.
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Pair Corralation between DOW and Carvana Co

Given the investment horizon of 90 days DOW is expected to generate 0.19 times more return on investment than Carvana Co. However, DOW is 5.18 times less risky than Carvana Co. It trades about 0.03 of its potential returns per unit of risk. Carvana Co Cl is currently generating about -0.06 per unit of risk. If you would invest  2,843,005  in DOW on February 20, 2022 and sell it today you would earn a total of  283,185  from holding DOW or generate 9.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Carvana Co Cl

 Performance (%) 
      Timeline 

DOW and Carvana Co Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
Nxp Semiconductors vs. DOW
Ford vs. DOW
Microsoft Corp vs. DOW
Zendesk vs. DOW
Vmware vs. DOW
Salesforce vs. DOW
Apple vs. DOW
Accenture Plc vs. DOW
Dupont Denemours vs. DOW
SP 500 vs. DOW
Applied Materials 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 Carvana Co

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

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
Dupont Denemours vs. DOW
Ford vs. DOW
Zendesk vs. DOW
Microsoft Corp vs. DOW
Vmware vs. DOW
Accenture Plc vs. DOW
Veeco Instrument vs. DOW
SP 500 vs. DOW
Palo Alto vs. DOW
Applied Materials 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 Carvana Co Cl 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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