Correlation Between NASDAQ Italy and DOW

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

Diversification Opportunities for NASDAQ Italy and DOW

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between NASDAQ and DOW is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding NASDAQ Italy and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and NASDAQ Italy 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 NASDAQ Italy are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of NASDAQ Italy i.e., NASDAQ Italy and DOW go up and down completely randomly.
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Pair Corralation between NASDAQ Italy and DOW

Assuming the 90 days horizon NASDAQ Italy is expected to under-perform the DOW. In addition to that, NASDAQ Italy is 1.75 times more volatile than DOW. It trades about -0.13 of its total potential returns per unit of risk. DOW is currently generating about -0.1 per unit of volatility. If you would invest  3,658,506  in DOW on April 3, 2022 and sell it today you would lose (548,780)  from holding DOW or give up 15.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy84.13%
ValuesDaily Returns

NASDAQ Italy  vs.  DOW

 Performance (%) 
      Timeline 

NASDAQ Italy and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

NASDAQ Italy

Pair trading matchups for NASDAQ Italy

Liquidia Corp vs. NASDAQ Italy
RENEWI PLC vs. NASDAQ Italy
Vmware vs. NASDAQ Italy
Novan vs. NASDAQ Italy
Arca Biopharma vs. NASDAQ Italy
Calyxt vs. NASDAQ Italy
BP PLC vs. NASDAQ Italy
Visa vs. NASDAQ Italy
Context Therapeutics vs. NASDAQ Italy
Seneca Foods vs. NASDAQ Italy
Alzamend Neuro vs. NASDAQ Italy
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 NASDAQ Italy 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. NASDAQ Italy'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, NASDAQ Italy'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 NASDAQ Italy.

DOW

Pair trading matchups for DOW

Arca Biopharma vs. DOW
Cyclacel Pharmaceuti vs. DOW
Calyxt vs. DOW
Alphabet vs. DOW
Visa vs. DOW
International Business vs. DOW
BP PLC vs. DOW
Solo Brands vs. DOW
Seneca Foods vs. DOW
Vmware vs. DOW
Sentinelone Inc 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 NASDAQ Italy and DOW

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

NASDAQ Italy

Pair trading matchups for NASDAQ Italy

Solo Brands vs. NASDAQ Italy
Seneca Foods vs. NASDAQ Italy
Vmware vs. NASDAQ Italy
Visa vs. NASDAQ Italy
Sentinelone Inc vs. NASDAQ Italy
Cyclacel Pharmaceuti vs. NASDAQ Italy
Context Therapeutics vs. NASDAQ Italy
RENEWI PLC vs. NASDAQ Italy
Alzamend Neuro vs. NASDAQ Italy
BP PLC vs. NASDAQ Italy
MITIE GROUP vs. NASDAQ Italy
ATT vs. NASDAQ Italy
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 NASDAQ Italy 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. NASDAQ Italy'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, NASDAQ Italy'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 NASDAQ Italy.
The idea behind NASDAQ Italy and DOW 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.

DOW

Pair trading matchups for DOW

International Business vs. DOW
Liquidia Corp vs. DOW
BP PLC vs. DOW
Calyxt vs. DOW
Vmware vs. DOW
MITIE GROUP vs. DOW
Alzamend Neuro vs. DOW
Novan vs. DOW
Solo Brands vs. DOW
Alphabet vs. DOW
RENEWI PLC vs. DOW
Arca Biopharma 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.
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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