# Correlation Between Alpha Metallurgical and DOW

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

## Diversification Opportunities for Alpha Metallurgical and DOW

0.53 | Correlation Coefficient |

### Very weak diversification

The 3 months correlation between Alpha and DOW is

**0.53**. Overlapping area represents the amount of risk that can be diversified away by holding Alpha Metallurgical Resources and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Alpha Metallurgical 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 Alpha Metallurgical Resources 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 Alpha Metallurgical i.e., Alpha Metallurgical and DOW go up and down completely randomly.## Pair Corralation between Alpha Metallurgical and DOW

Considering the 90-day investment horizon Alpha Metallurgical Resources is expected to generate 4.97 times more return on investment than DOW. However, Alpha Metallurgical is 4.97 times more volatile than DOW. It trades about 0.15 of its potential returns per unit of risk. DOW is currently generating about 0.25 per unit of risk. If you would invest

**11,518**in Alpha Metallurgical Resources on**May 11, 2022**and sell it today you would**earn a total of 1,626**from holding Alpha Metallurgical Resources or generate**14.12%**return on investment over**90**days.Time Period | 3 Months [change] |

Direction | Moves Together |

Strength | Weak |

Accuracy | 100.0% |

Values | Daily Returns |

## Alpha Metallurgical Resources vs. DOW

Performance (%) |

Timeline |

## Alpha Metallurgical and DOW Volatility Contrast

Predicted Return Density |

Returns |

## Alpha Metallurgical Resources

### Pair trading matchups for Alpha Metallurgical

## DOW

### Pair trading matchups for 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 Alpha Metallurgical and DOW

The main advantage of trading using opposite Alpha Metallurgical and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alpha Metallurgical 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.## Alpha Metallurgical Resources

### Pair trading matchups for Alpha Metallurgical

## DOW

### Pair trading matchups for 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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