Correlation Between DOW and USAA MSCI

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

Diversification Opportunities for DOW and USAA MSCI

0.47
  Correlation Coefficient

Very weak diversification

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

Given the investment horizon of 90 days DOW is expected to generate 0.95 times more return on investment than USAA MSCI. However, DOW is 1.05 times less risky than USAA MSCI. It trades about 0.0 of its potential returns per unit of risk. USAA MSCI EM is currently generating about -0.04 per unit of risk. If you would invest  3,396,204  in DOW on May 13, 2022 and sell it today you would lose (41,609)  from holding DOW or give up 1.23% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  USAA MSCI EM

 Performance (%) 
       Timeline  

DOW and USAA MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

DOW

Pair trading matchups for DOW

Boeing vs. DOW
Erie Indemnity vs. DOW
Starbucks Corp vs. DOW
Bgc Partners vs. DOW
Nasdaq 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.

USAA MSCI EM

Pair trading matchups for USAA MSCI

Bgc Partners vs. USAA MSCI
Home Bancshares vs. USAA MSCI
Ezcorp vs. USAA MSCI
Lpl Financial vs. USAA MSCI
Erie Indemnity vs. USAA MSCI
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 USAA MSCI 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. USAA MSCI'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, USAA MSCI'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 USAA MSCI EM.

Pair Trading with DOW and USAA MSCI

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

DOW

Pair trading matchups for DOW

Ezcorp vs. DOW
First Citizens vs. DOW
Starbucks Corp vs. DOW
Erie Indemnity vs. DOW
Lpl Financial 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 USAA MSCI EM 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.

USAA MSCI EM

Pair trading matchups for USAA MSCI

Home Bancshares vs. USAA MSCI
Bgc Partners vs. USAA MSCI
Lpl Financial vs. USAA MSCI
Ezcorp vs. USAA MSCI
Erie Indemnity vs. USAA MSCI
Nasdaq vs. USAA MSCI
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 USAA MSCI 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. USAA MSCI'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, USAA MSCI'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 USAA MSCI EM.
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 Stock Screener module to find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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