Correlation Between DOW and Health Assurance

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

Diversification Opportunities for DOW and Health Assurance

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between DOW and Health is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Health Assurance Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Assurance Acq 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 Health Assurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Assurance Acq has no effect on the direction of DOW i.e., DOW and Health Assurance go up and down completely randomly.
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Pair Corralation between DOW and Health Assurance

If you would invest  3,053,025  in DOW on May 21, 2022 and sell it today you would earn a total of  346,879  from holding DOW or generate 11.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy2.38%
ValuesDaily Returns

DOW  vs.  Health Assurance Acquisition

 Performance (%) 
       Timeline  

DOW and Health Assurance Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for 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.

Health Assurance Acquisition

Pair trading matchups for Health Assurance

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 Health Assurance 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. Health Assurance'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, Health Assurance'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 Health Assurance Acquisition.

Pair Trading with DOW and Health Assurance

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

DOW

Pair trading matchups for 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 Health Assurance Acquisition 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.

Health Assurance Acquisition

Pair trading matchups for Health Assurance

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 Health Assurance 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. Health Assurance'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, Health Assurance'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 Health Assurance Acquisition.
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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