Correlation Between DOW and Positive Physicians

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

Diversification Opportunities for DOW and Positive Physicians

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Positive is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Positive Physicians Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Positive Physicians 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 Positive Physicians. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Positive Physicians has no effect on the direction of DOW i.e., DOW and Positive Physicians go up and down completely randomly.
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Pair Corralation between DOW and Positive Physicians

Given the investment horizon of 90 days DOW is expected to generate 6.97 times less return on investment than Positive Physicians. But when comparing it to its historical volatility, DOW is 8.69 times less risky than Positive Physicians. It trades about 0.04 of its potential returns per unit of risk. Positive Physicians Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,143  in Positive Physicians Holdings on April 3, 2022 and sell it today you would lose (276.00)  from holding Positive Physicians Holdings or give up 24.15% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.8%
ValuesDaily Returns

DOW  vs.  Positive Physicians Holdings

 Performance (%) 
      Timeline 

DOW and Positive Physicians Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

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Visa 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.

Positive Physicians Holdings

Pair trading matchups for Positive Physicians

Pair Trading with DOW and Positive Physicians

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

DOW

Pair trading matchups for DOW

Alzamend Neuro vs. DOW
Context Therapeutics vs. DOW
RENEWI PLC vs. DOW
Alphabet vs. DOW
Sentinelone Inc vs. DOW
BP PLC vs. DOW
MITIE GROUP vs. DOW
International Business vs. DOW
Vmware vs. DOW
Liquidia Corp vs. DOW
Visa vs. DOW
Calyxt 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 Positive Physicians Holdings 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.

Positive Physicians Holdings

Pair trading matchups for Positive Physicians

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 Global Correlations module to find global opportunities by holding instruments from different markets.

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