Correlation Between Nike and DOW

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

Diversification Opportunities for Nike and DOW

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Nike and DOW is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Nike 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 Nike Inc 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 Nike i.e., Nike and DOW go up and down completely randomly.
    Optimize

Pair Corralation between Nike and DOW

Considering the 90-day investment horizon Nike Inc is expected to under-perform the DOW. In addition to that, Nike is 1.97 times more volatile than DOW. It trades about -0.09 of its total potential returns per unit of risk. DOW is currently generating about -0.09 per unit of volatility. If you would invest  3,289,937  in DOW on April 6, 2022 and sell it today you would lose (180,211)  from holding DOW or give up 5.48% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Nike Inc  vs.  DOW

 Performance (%) 
      Timeline 

Nike and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Occidental Petroleum vs. DOW
Simplify Interest vs. DOW
Sentinelone Inc vs. DOW
US Oil vs. DOW
Citigroup vs. DOW
Ford vs. DOW
Chevron Corp vs. DOW
GM vs. DOW
Tesla vs. DOW
Ipath Series 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 Nike and DOW

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

Simplify Interest vs. DOW
Citigroup vs. DOW
Sentinelone Inc vs. DOW
Exxon vs. DOW
Tesla vs. DOW
Ultrashort Yen vs. DOW
GM vs. DOW
US Brent vs. DOW
Ford vs. DOW
Occidental Petroleum vs. DOW
Chevron Corp 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.

Other Complementary Tools

Portfolio Comparator
Compare the composition, asset allocations and performance of any two portfolios in your account
Go
Shere Portfolio
Track or share privately all of your investments from the convenience of any device
Go
My Watchlist Analysis
Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like
Go
Money Managers
Screen money managers from public funds and ETFs managed around the world
Go
Competition Analyzer
Analyze and compare many basic indicators for a group of related or unrelated entities
Go
Portfolio File Import
Quickly import all of your third-party portfolios from your local drive in csv format
Go