Correlation Between Greenwich Lifesciences and DOW

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

Diversification Opportunities for Greenwich Lifesciences and DOW

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Greenwich and DOW is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Greenwich Lifesciences and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Greenwich Lifesciences 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 Greenwich Lifesciences 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 Greenwich Lifesciences i.e., Greenwich Lifesciences and DOW go up and down completely randomly.
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Pair Corralation between Greenwich Lifesciences and DOW

Given the investment horizon of 90 days Greenwich Lifesciences is expected to under-perform the DOW. In addition to that, Greenwich Lifesciences is 4.85 times more volatile than DOW. It trades about -0.05 of its total potential returns per unit of risk. DOW is currently generating about -0.09 per unit of volatility. If you would invest  3,297,721  in DOW on March 30, 2022 and sell it today you would lose (203,022)  from holding DOW or give up 6.16% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Greenwich Lifesciences  vs.  DOW

 Performance (%) 
      Timeline 

Greenwich Lifesciences and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

Greenwich Lifesciences

Pair trading matchups for Greenwich Lifesciences

DOW

Pair trading matchups for DOW

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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 Greenwich Lifesciences and DOW

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

Greenwich Lifesciences

Pair trading matchups for Greenwich Lifesciences

The idea behind Greenwich Lifesciences 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

San Juan vs. DOW
Star Bulk vs. DOW
Pacific Gas vs. DOW
U S vs. DOW
Stealthgas vs. DOW
Burford Capital vs. DOW
Walgreens Boots vs. DOW
Gran Tierra vs. DOW
Geely Automobile vs. DOW
Radian vs. DOW
American Manganese 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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