Correlation Between DOW and Ultrashort Utilities

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

Diversification Opportunities for DOW and Ultrashort Utilities

-0.83
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between DOW and Ultrashort is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Ultrashort Utilities ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Utilities ETF 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 Ultrashort Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Utilities ETF has no effect on the direction of DOW i.e., DOW and Ultrashort Utilities go up and down completely randomly.
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Pair Corralation between DOW and Ultrashort Utilities

Given the investment horizon of 90 days DOW is expected to generate 0.47 times more return on investment than Ultrashort Utilities. However, DOW is 2.11 times less risky than Ultrashort Utilities. It trades about 0.03 of its potential returns per unit of risk. Ultrashort Utilities ETF is currently generating about -0.05 per unit of risk. If you would invest  2,784,491  in DOW on April 8, 2022 and sell it today you would earn a total of  345,172  from holding DOW or generate 12.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Ultrashort Utilities ETF

 Performance (%) 
      Timeline 

DOW and Ultrashort Utilities Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Twitter vs. DOW
Eli Lilly vs. DOW
GM vs. DOW
Embark Technology vs. DOW
Energous Corp vs. DOW
Trivago NV vs. DOW
Merck vs. DOW
Bank of New York vs. DOW
ATT vs. DOW
Alibaba Group vs. DOW
Sachem Capital vs. DOW
Invesco Mortgage 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.

Ultrashort Utilities ETF

Pair trading matchups for Ultrashort Utilities

Trivago NV vs. Ultrashort Utilities
GM vs. Ultrashort Utilities
Vmware vs. Ultrashort Utilities
Eli Lilly vs. Ultrashort Utilities
Ford vs. Ultrashort Utilities
Merck vs. Ultrashort Utilities
Energous Corp vs. Ultrashort Utilities
Bank of New York vs. Ultrashort Utilities
Embark Technology vs. Ultrashort Utilities
SL Green vs. Ultrashort Utilities
Microsoft Corp vs. Ultrashort Utilities
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 Ultrashort Utilities 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. Ultrashort Utilities' 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, Ultrashort Utilities' 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 Ultrashort Utilities ETF.

Pair Trading with DOW and Ultrashort Utilities

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

DOW

Pair trading matchups for DOW

Meta Platforms vs. DOW
VISA INC vs. DOW
Merck vs. DOW
Eli Lilly vs. DOW
Trivago NV vs. DOW
Energous Corp vs. DOW
Sachem Capital vs. DOW
SL Green vs. DOW
Twitter vs. DOW
Walker Dunlop 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.
The idea behind DOW and Ultrashort Utilities ETF 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.

Ultrashort Utilities ETF

Pair trading matchups for Ultrashort Utilities

Alibaba Group vs. Ultrashort Utilities
Vmware vs. Ultrashort Utilities
Embark Technology vs. Ultrashort Utilities
VISA INC vs. Ultrashort Utilities
SL Green vs. Ultrashort Utilities
ATT vs. Ultrashort Utilities
Ford vs. Ultrashort Utilities
Invesco Mortgage vs. Ultrashort Utilities
Merck vs. Ultrashort Utilities
Sachem Capital vs. Ultrashort Utilities
Twitter vs. Ultrashort Utilities
Trivago NV vs. Ultrashort Utilities
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 Ultrashort Utilities 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. Ultrashort Utilities' 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, Ultrashort Utilities' 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 Ultrashort Utilities ETF.
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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