Correlation Between DOW and IQ Hedge

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

Diversification Opportunities for DOW and IQ Hedge

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between DOW and IQ Hedge is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding DOW and IQ Hedge Multi-Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IQ Hedge Multi-Strategy 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 IQ Hedge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IQ Hedge Multi-Strategy has no effect on the direction of DOW i.e., DOW and IQ Hedge go up and down completely randomly.
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Pair Corralation between DOW and IQ Hedge

Given the investment horizon of 90 days DOW is expected to under-perform the IQ Hedge. In addition to that, DOW is 2.12 times more volatile than IQ Hedge Multi-Strategy. It trades about -0.2 of its total potential returns per unit of risk. IQ Hedge Multi-Strategy is currently generating about -0.24 per unit of volatility. If you would invest  2,967  in IQ Hedge Multi-Strategy on April 7, 2022 and sell it today you would lose (101.00)  from holding IQ Hedge Multi-Strategy or give up 3.4% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  IQ Hedge Multi-Strategy

 Performance (%) 
      Timeline 

DOW and IQ Hedge Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Ollies Bargain vs. DOW
Interactive Brokers vs. DOW
Ezcorp vs. DOW
Mandiant vs. DOW
MP Materials vs. DOW
Occidental Petroleum vs. DOW
Greenlight Cap vs. DOW
Albemarle Corp vs. DOW
GM vs. DOW
Freyr Battery vs. DOW
Twitter vs. DOW
ATT 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.

IQ Hedge Multi-Strategy

Pair trading matchups for IQ Hedge

Penn Natl vs. IQ Hedge
Ezcorp vs. IQ Hedge
Halliburton vs. IQ Hedge
Freyr Battery vs. IQ Hedge
Mandiant vs. IQ Hedge
Interactive Brokers vs. IQ Hedge
Albemarle Corp vs. IQ Hedge
Ollies Bargain vs. IQ Hedge
Twitter vs. IQ Hedge
Eastgroup Properties vs. IQ Hedge
Purecycle Technologies vs. IQ Hedge
Erie Indemnity vs. IQ Hedge
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 IQ Hedge 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. IQ Hedge'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, IQ Hedge'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 IQ Hedge Multi-Strategy.

Pair Trading with DOW and IQ Hedge

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

DOW

Pair trading matchups for DOW

Albemarle Corp vs. DOW
Ezcorp vs. DOW
Twitter vs. DOW
Erie Indemnity vs. DOW
United Fire vs. DOW
Occidental Petroleum vs. DOW
GM vs. DOW
Interactive Brokers vs. DOW
Penn Natl vs. DOW
ATT vs. DOW
Ollies Bargain vs. DOW
Halliburton 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 IQ Hedge Multi-Strategy 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.

IQ Hedge Multi-Strategy

Pair trading matchups for IQ Hedge

Bancfirst Corp vs. IQ Hedge
Ollies Bargain vs. IQ Hedge
Greenlight Cap vs. IQ Hedge
United Fire vs. IQ Hedge
MP Materials vs. IQ Hedge
Albemarle Corp vs. IQ Hedge
Purecycle Technologies vs. IQ Hedge
Halliburton vs. IQ Hedge
ATT vs. IQ Hedge
Mandiant vs. IQ Hedge
Penn Natl vs. IQ Hedge
Erie Indemnity vs. IQ Hedge
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 IQ Hedge 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. IQ Hedge'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, IQ Hedge'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 IQ Hedge Multi-Strategy.
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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