Correlation Between DOW and Federated Mdt

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both DOW and Federated Mdt 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 Federated Mdt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW and Federated Mdt All, you can compare the effects of market volatilities on DOW and Federated Mdt 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 Federated Mdt. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Federated Mdt.

Diversification Opportunities for DOW and Federated Mdt

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between DOW and Federated is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Federated Mdt All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federated Mdt All 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 Federated Mdt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federated Mdt All has no effect on the direction of DOW i.e., DOW and Federated Mdt go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Federated Mdt

Given the investment horizon of 90 days DOW is expected to generate 0.78 times more return on investment than Federated Mdt. However, DOW is 1.29 times less risky than Federated Mdt. It trades about -0.1 of its potential returns per unit of risk. Federated Mdt All is currently generating about -0.1 per unit of risk. If you would invest  3,529,419  in DOW on June 27, 2022 and sell it today you would lose (570,378)  from holding DOW or give up 16.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy99.21%
ValuesDaily Returns

DOW  vs.  Federated Mdt All

 Performance (%) 
       Timeline  

DOW and Federated Mdt Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for 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.

Federated Mdt All

Pair trading matchups for Federated Mdt

Pair Trading with DOW and Federated Mdt

The main advantage of trading using opposite DOW and Federated Mdt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW position performs unexpectedly, Federated Mdt 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 Federated Mdt will offset losses from the drop in Federated Mdt's long position.
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 Federated Mdt All 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.
Federated Mdt vs. Caterpillar
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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

Other Complementary Tools

Money Flow Index
Determine momentum by analyzing Money Flow Index and other technical indicators
Go
Fundamental Analysis
View fundamental data based on most recent published financial statements
Go
Global Correlations
Find global opportunities by holding instruments from different markets
Go
Portfolio Manager
State of the art Portfolio Manager to monitor and improve performance of your invested capital
Go
Portfolio Anywhere
Track or share privately all of your investments from the convenience of any device
Go
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Go
Performance Analysis
Check effects of mean-variance optimization against your current asset allocation
Go
Crypto Correlations
Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins
Go
Efficient Frontier
Plot and analyze your portfolio and positions against risk-return landscape of the market.
Go
Premium Stories
Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope
Go