Correlation Between DOW and Genuine Parts

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

Diversification Opportunities for DOW and Genuine Parts

0.17
  Correlation Coefficient

Average diversification

The 6 months correlation between DOW and Genuine is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts 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 Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of DOW i.e., DOW and Genuine Parts go up and down completely randomly.
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Pair Corralation between DOW and Genuine Parts

Given the investment horizon of 90 days DOW is expected to under-perform the Genuine Parts. But the index apears to be less risky and, when comparing its historical volatility, DOW is 1.19 times less risky than Genuine Parts. The index trades about -0.1 of its potential returns per unit of risk. The Genuine Parts is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  13,514  in Genuine Parts on March 27, 2022 and sell it today you would earn a total of  161.00  from holding Genuine Parts or generate 1.19% return on investment over 90 days.
Time Period6 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Genuine Parts

 Performance (%) 
      Timeline 

DOW and Genuine Parts Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Envirotech Vehicles vs. DOW
Concrete Pumping vs. DOW
Quantumscape Corp vs. DOW
DB Commodity vs. DOW
Genie Energy vs. DOW
Vaneck Oil vs. DOW
CalAmp Corp vs. DOW
Stealthgas vs. DOW
SP 500 vs. DOW
Li-Cycle Holdings vs. DOW
Infineon Tech vs. DOW
Kar Auction 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 Genuine Parts

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

DOW

Pair trading matchups for DOW

Coinbase Global vs. DOW
Envirotech Vehicles vs. DOW
Infineon Tech vs. DOW
DB Commodity vs. DOW
SP 500 vs. DOW
Quantumscape Corp vs. DOW
BERKSHIRE HATHAWAY vs. DOW
Vaneck Oil vs. DOW
Li-Cycle Holdings vs. DOW
Ally Financial 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.
The idea behind DOW and Genuine Parts 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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