Correlation Between DOW and Under Armour

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

Diversification Opportunities for DOW and Under Armour

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between DOW and Under is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Under Armour Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Under Armour 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 Under Armour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Under Armour has no effect on the direction of DOW i.e., DOW and Under Armour go up and down completely randomly.
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Pair Corralation between DOW and Under Armour

Given the investment horizon of 90 days DOW is expected to generate 2.74 times less return on investment than Under Armour. But when comparing it to its historical volatility, DOW is 3.02 times less risky than Under Armour. It trades about 0.27 of its potential returns per unit of risk. Under Armour is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  761.00  in Under Armour on May 10, 2022 and sell it today you would earn a total of  121.00  from holding Under Armour or generate 15.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Under Armour Inc

 Performance (%) 
       Timeline  

DOW and Under Armour Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Vmware vs. DOW
Universal Logis vs. DOW
Visteon Corp vs. DOW
Amazon vs. DOW
Tejon Ranch vs. DOW
Kennedy-Wilson Holdings vs. DOW
Alphabet vs. DOW
Amgen vs. DOW
Walker Dunlop vs. DOW
Oracle 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 Under Armour

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

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
Manufactured Housing vs. DOW
Kennedy-Wilson Holdings vs. DOW
Amgen vs. DOW
Microsoft Corp vs. DOW
Catalyst Pharm vs. DOW
Walker Dunlop vs. DOW
Vmware vs. DOW
Visteon Corp vs. DOW
QK International 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 Under Armour 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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