Correlation Between DOW and Qantas Airways

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

Diversification Opportunities for DOW and Qantas Airways

0.76
  Correlation Coefficient

Poor diversification

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

Pair Corralation between DOW and Qantas Airways

Given the investment horizon of 90 days DOW is expected to generate 0.37 times more return on investment than Qantas Airways. However, DOW is 2.73 times less risky than Qantas Airways. It trades about 0.01 of its potential returns per unit of risk. Qantas Airways ADR is currently generating about -0.01 per unit of risk. If you would invest  2,986,155  in DOW on April 6, 2022 and sell it today you would earn a total of  66,297  from holding DOW or generate 2.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Qantas Airways ADR

 Performance (%) 
      Timeline 

DOW and Qantas Airways Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Twitter vs. DOW
Microsoft Corp vs. DOW
Ultrashort MSCI vs. DOW
Chemocentryx vs. DOW
China Life vs. DOW
Vmware vs. DOW
Citigroup vs. DOW
Dupont Denemours vs. DOW
Otp Bank vs. DOW
Walker Dunlop 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 Qantas Airways

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

DOW

Pair trading matchups for DOW

Dupont Denemours vs. DOW
Microsoft Corp vs. DOW
Kura Oncology vs. DOW
Otp Bank vs. DOW
Ollies Bargain vs. DOW
Walker Dunlop vs. DOW
Ultrashort MSCI vs. DOW
Twitter vs. DOW
Bidvest vs. DOW
Kimball Electrnc 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 Qantas Airways ADR 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

Other Complementary Tools

Portfolio Volatility
Check portfolio volatility and analyze historical return density to properly model market risk
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
Performance Analysis
Check effects of mean-variance optimization against your current asset allocation
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Portfolio Rebalancing
Analyze risk-adjusted returns against different time horizons to find asset-allocation targets
Go
Equity Search
Search for actively traded equities including funds and ETFs from over 30 global markets
Go