Correlation Between Badger Infrastructure and DOW

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both Badger Infrastructure 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 Badger Infrastructure and DOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Badger Infrastructure Solutions and DOW, you can compare the effects of market volatilities on Badger Infrastructure 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 Badger Infrastructure with a short position of DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Badger Infrastructure and DOW.

Diversification Opportunities for Badger Infrastructure and DOW

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Badger and DOW is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Badger Infrastructure Solution and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Badger Infrastructure 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 Badger Infrastructure Solutions 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 Badger Infrastructure i.e., Badger Infrastructure and DOW go up and down completely randomly.
    Optimize

Pair Corralation between Badger Infrastructure and DOW

Assuming the 90 days horizon Badger Infrastructure is expected to generate 1.81 times less return on investment than DOW. In addition to that, Badger Infrastructure is 1.93 times more volatile than DOW. It trades about 0.01 of its total potential returns per unit of risk. DOW is currently generating about 0.02 per unit of volatility. If you would invest  3,306,150  in DOW on August 30, 2022 and sell it today you would earn a total of  112,631  from holding DOW or generate 3.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy99.32%
ValuesDaily Returns

Badger Infrastructure Solution  vs.  DOW

 Performance (%) 
       Timeline  

Badger Infrastructure and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

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 Badger Infrastructure and DOW

The main advantage of trading using opposite Badger Infrastructure and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Badger Infrastructure 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.
Badger Infrastructure vs. Quanta Services
Badger Infrastructure vs. WSP Global
Badger Infrastructure vs. Aecom Technology Corp
Badger Infrastructure vs. Bright Lights Acquisition
The idea behind Badger Infrastructure Solutions 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.
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

Other Complementary Tools

Analyst Recommendations
Analyst recommendations and target price estimates broken down by several categories
Go
Equity Valuation
Check real value of public entities based on technical and fundamental data
Go
Headlines Timeline
Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity
Go
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Equity Valuation
Check real value of public entities based on technical and fundamental data
Go
Insider Screener
Find insiders across different sectors to evaluate their impact on performance
Go
Aroon Oscillator
Analyze current equity momentum using Aroon Oscillator and other momentum ratios
Go
Headlines Timeline
Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity
Go
Stock Tickers
Use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites
Go
Watchlist Optimization
Optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go