Correlation Between DOW and Qualys

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

Diversification Opportunities for DOW and Qualys

0.47
  Correlation Coefficient

Very weak diversification

The 3 months correlation between DOW and Qualys is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Qualys Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Qualys Inc 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 Qualys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Qualys Inc has no effect on the direction of DOW i.e., DOW and Qualys go up and down completely randomly.
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Pair Corralation between DOW and Qualys

Given the investment horizon of 90 days DOW is expected to generate 2.68 times less return on investment than Qualys. But when comparing it to its historical volatility, DOW is 3.97 times less risky than Qualys. It trades about 0.47 of its potential returns per unit of risk. Qualys Inc is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  12,305  in Qualys Inc on May 17, 2022 and sell it today you would earn a total of  3,089  from holding Qualys Inc or generate 25.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Qualys Inc

 Performance (%) 
       Timeline  

DOW and Qualys Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Tenneco Automotive vs. DOW
Dupont Denemours vs. DOW
Boeing vs. DOW
Vmware vs. DOW
Aspen Technology vs. DOW
Sentinelone Inc vs. DOW
Equinix vs. DOW
United Rentals vs. DOW
Qualcomm vs. DOW
Amazon vs. DOW
Skyworks Solutions 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 Qualys

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

DOW

Pair trading matchups for DOW

Graphic Packaging vs. DOW
United Rentals vs. DOW
Boeing vs. DOW
Tenneco Automotive vs. DOW
Amazon vs. DOW
Visa vs. DOW
Skyworks Solutions vs. DOW
Ford vs. DOW
Walker Dunlop vs. DOW
Wex vs. DOW
Equinix vs. DOW
Aspen Technology 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 Qualys Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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