Correlation Between Novan and DOW

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

Diversification Opportunities for Novan and DOW

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between Novan and DOW is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Novan Inc and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Novan 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 Novan 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 Novan i.e., Novan and DOW go up and down completely randomly.
    Optimize

Pair Corralation between Novan and DOW

Given the investment horizon of 90 days Novan Inc is expected to under-perform the DOW. In addition to that, Novan is 3.59 times more volatile than DOW. It trades about -0.09 of its total potential returns per unit of risk. DOW is currently generating about -0.01 per unit of volatility. If you would invest  3,496,069  in DOW on May 15, 2022 and sell it today you would lose (119,964)  from holding DOW or give up 3.43% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Novan Inc  vs.  DOW

 Performance (%) 
       Timeline  

Novan and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

Novan Inc

Pair trading matchups for Novan

DOW

Pair trading matchups for DOW

Essential Properties vs. DOW
Semiconductor Bear vs. DOW
Ark Innovation vs. DOW
Rolls Royce vs. DOW
Horizon Therapeutics vs. DOW
Prog Hldgs vs. DOW
Cto Realty vs. DOW
Olema Pharmaceuticals 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 Novan and DOW

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

Novan Inc

Pair trading matchups for Novan

The idea behind Novan 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

Prog Hldgs vs. DOW
Essential Properties vs. DOW
Nike vs. DOW
Cto Realty vs. DOW
Olema Pharmaceuticals vs. DOW
Rolls Royce vs. DOW
Horizon Therapeutics vs. DOW
Semiconductor Bear 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.

Other Complementary Tools

Cryptocurrency Center
Build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency
Go
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Portfolio Optimization
Compute new portfolio that will generate highest expected return given your specified tolerance for risk
Go
Instant Ratings
Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance
Go
Portfolio Center
All portfolio management and optimization tools to improve performance of your portfolios
Go
Companies Directory
Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals
Go
Idea Breakdown
Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes
Go
Alpha Finder
Use alpha and beta coefficients to find investment opportunities after accounting for the risk
Go
Price Transformation
Use Price Transformation models to analyze depth of different equity instruments across global markets
Go
Financial Widgets
Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Balance Of Power
Check stock momentum by analyzing Balance Of Power indicator and other technical ratios
Go
Content Syndication
Quickly integrate customizable finance content to your own investment portal
Go