Correlation Between DOW and Moderna

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

Diversification Opportunities for DOW and Moderna

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Moderna is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Moderna in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderna 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 Moderna. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderna has no effect on the direction of DOW i.e., DOW and Moderna go up and down completely randomly.
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Pair Corralation between DOW and Moderna

Given the investment horizon of 90 days DOW is expected to generate 11.96 times less return on investment than Moderna. But when comparing it to its historical volatility, DOW is 5.12 times less risky than Moderna. It trades about 0.03 of its potential returns per unit of risk. Moderna is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,367  in Moderna on April 7, 2022 and sell it today you would earn a total of  9,589  from holding Moderna or generate 150.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Moderna

 Performance (%) 
      Timeline 

DOW and Moderna Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Ezcorp vs. DOW
Purecycle Technologies vs. DOW
Ollies Bargain vs. DOW
Occidental Petroleum vs. DOW
United Fire vs. DOW
Interactive Brokers vs. DOW
Greenlight Cap vs. DOW
Twitter vs. DOW
Freyr Battery vs. DOW
MP Materials vs. DOW
Alpha Metallurgical vs. DOW
GM 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.

Moderna

Pair trading matchups for Moderna

Pair Trading with DOW and Moderna

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

DOW

Pair trading matchups for DOW

GM vs. DOW
United Fire vs. DOW
Albemarle Corp vs. DOW
ATT vs. DOW
Freyr Battery vs. DOW
Halliburton vs. DOW
Twitter vs. DOW
Alpha Metallurgical vs. DOW
Purecycle Technologies vs. DOW
Ezcorp vs. DOW
MP Materials vs. DOW
Occidental Petroleum 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 Moderna 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.

Moderna

Pair trading matchups for Moderna

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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