Correlation Between DOW and GreenSky

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

Diversification Opportunities for DOW and GreenSky

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and GreenSky is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding DOW and GreenSky Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GreenSky 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 GreenSky. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GreenSky has no effect on the direction of DOW i.e., DOW and GreenSky go up and down completely randomly.
    Optimize

Pair Corralation between DOW and GreenSky

Given the investment horizon of 90 days DOW is expected to generate 5.69 times less return on investment than GreenSky. But when comparing it to its historical volatility, DOW is 4.13 times less risky than GreenSky. It trades about 0.04 of its potential returns per unit of risk. GreenSky is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  470.00  in GreenSky on March 29, 2022 and sell it today you would earn a total of  550.00  from holding GreenSky or generate 117.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy88.55%
ValuesDaily Returns

DOW  vs.  GreenSky Inc

 Performance (%) 
      Timeline 

DOW and GreenSky Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Macroaxis vs. DOW
Conagra Brands vs. DOW
Cincinnati Financial vs. DOW
Teucrium Corn vs. DOW
Verizon Communications vs. DOW
Chevron Corp 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 GreenSky

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

DOW

Pair trading matchups for DOW

Chevron Corp vs. DOW
Merck vs. DOW
Teucrium Corn vs. DOW
Northrop Grumman vs. DOW
Conagra Brands vs. DOW
Home Depot vs. DOW
Cincinnati Financial vs. DOW
Verizon Communications 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 GreenSky 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

Other Complementary Tools

Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Earnings Calls
Check upcoming earnings announcements updated hourly across public exchanges
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Portfolio Suggestion
Get suggestions outside of your existing asset allocation including your own model portfolios
Go
Watchlist Optimization
Optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm
Go
My Watchlist Analysis
Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like
Go