Correlation Between DOW and Ipower

By analyzing existing cross correlation between DOW and Ipower Inc, you can compare the effects of market volatilities on DOW and Ipower 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 Ipower. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Ipower.

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Can any of the company-specific risk be diversified away by investing in both DOW and Ipower 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 Ipower into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for DOW and Ipower

-0.38
  Correlation Coefficient
DOW
Ipower Inc

Very good diversification

The 3 months correlation between DOW and Ipower is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Ipower Inc in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Ipower Inc 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 Ipower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ipower Inc has no effect on the direction of DOW i.e., DOW and Ipower go up and down completely randomly.
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Pair Corralation between DOW and Ipower

Given the investment horizon of 90 days DOW is expected to generate 0.26 times more return on investment than Ipower. However, DOW is 3.84 times less risky than Ipower. It trades about 0.04 of its potential returns per unit of risk. Ipower Inc is currently generating about -0.02 per unit of risk. If you would invest  2,788,172  in DOW on August 31, 2021 and sell it today you would earn a total of  798,923  from holding DOW or generate 28.65% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy28.11%
ValuesDaily Returns

DOW  vs.  Ipower Inc

 Performance (%) 
      Timeline 

DOW and Ipower Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Bitcoin vs. DOW
Enovix Corp vs. DOW
BriaCell Therapeutics vs. DOW
Plug Power vs. DOW
Microsoft Corp vs. DOW
Salesforce vs. DOW
GM vs. DOW
Arweave vs. DOW
Du Pont vs. DOW
Tesla vs. DOW
Expensify Inc vs. DOW
SysCoin 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 Ipower

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

DOW

Pair trading matchups for DOW

Du Pont vs. DOW
Plug Power vs. DOW
GM vs. DOW
Arweave vs. DOW
Salesforce vs. DOW
Arcbest Corp vs. DOW
Microsoft Corp vs. DOW
Tesla vs. DOW
Smart Bitcoin vs. DOW
Ford vs. DOW
Enovix Corp vs. DOW
Calumet Specialty 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 Ipower Inc 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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