Correlation Between DOW and Halliburton

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

Diversification Opportunities for DOW and Halliburton

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Halliburton is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Halliburton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Halliburton 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 Halliburton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Halliburton has no effect on the direction of DOW i.e., DOW and Halliburton go up and down completely randomly.
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Pair Corralation between DOW and Halliburton

Given the investment horizon of 90 days DOW is expected to generate 0.37 times more return on investment than Halliburton. However, DOW is 2.71 times less risky than Halliburton. It trades about -0.18 of its potential returns per unit of risk. Halliburton is currently generating about -0.43 per unit of risk. If you would invest  3,291,578  in DOW on April 7, 2022 and sell it today you would lose (187,810)  from holding DOW or give up 5.71% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Halliburton

 Performance (%) 
      Timeline 

DOW and Halliburton Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Alpha Metallurgical vs. DOW
Occidental Petroleum vs. DOW
Albemarle Corp vs. DOW
Ollies Bargain vs. DOW
Greenlight Cap vs. DOW
Twitter vs. DOW
Freyr Battery vs. DOW
ATT vs. DOW
Eastgroup Properties vs. DOW
Halliburton vs. DOW
Bancfirst Corp vs. DOW
MP 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 Halliburton

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

DOW

Pair trading matchups for DOW

Bancfirst Corp vs. DOW
Eastgroup Properties vs. DOW
Interactive Brokers vs. DOW
Mandiant vs. DOW
United Fire vs. DOW
Purecycle Technologies vs. DOW
Greenlight Cap vs. DOW
GM vs. DOW
ATT vs. DOW
Twitter vs. DOW
Halliburton vs. DOW
Freyr Battery 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 Halliburton 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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