Correlation Between DOW and Perficient

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

Diversification Opportunities for DOW and Perficient

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between DOW and Perficient is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Perficient in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perficient 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 Perficient. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perficient has no effect on the direction of DOW i.e., DOW and Perficient go up and down completely randomly.
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Pair Corralation between DOW and Perficient

Given the investment horizon of 90 days DOW is expected to generate 0.27 times more return on investment than Perficient. However, DOW is 3.74 times less risky than Perficient. It trades about 0.28 of its potential returns per unit of risk. Perficient is currently generating about 0.0 per unit of risk. If you would invest  3,053,025  in DOW on May 20, 2022 and sell it today you would earn a total of  348,628  from holding DOW or generate 11.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Perficient

 Performance (%) 
       Timeline  

DOW and Perficient Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

JP Morgan vs. DOW
Ford vs. DOW
Alibaba Group vs. DOW
Walker Dunlop vs. DOW
Citigroup vs. DOW
Vmware vs. DOW
Salesforce vs. DOW
SPDR SP vs. DOW
Alps Clean vs. DOW
Twitter vs. DOW
Global Clean 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.

Perficient

Pair trading matchups for Perficient

Pair Trading with DOW and Perficient

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

DOW

Pair trading matchups for DOW

JP Morgan vs. DOW
Salesforce vs. DOW
Walker Dunlop vs. DOW
Vmware vs. DOW
SP 500 vs. DOW
Paypal Holdings vs. DOW
Alibaba Group vs. DOW
Ford vs. DOW
Vici Properties vs. DOW
SPDR SP vs. DOW
Twitter 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.
The idea behind DOW and Perficient 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.

Perficient

Pair trading matchups for Perficient

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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