Correlation Between Oberweis Small-Cap and DOW

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

Diversification Opportunities for Oberweis Small-Cap and DOW

0.84
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Oberweis and DOW is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Oberweis Small-Cap Opportuniti and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Oberweis Small-Cap 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 Oberweis Small-Cap Opportunities 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 Oberweis Small-Cap i.e., Oberweis Small-Cap and DOW go up and down completely randomly.
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Pair Corralation between Oberweis Small-Cap and DOW

Assuming the 90 days horizon Oberweis Small-Cap Opportunities is expected to generate 1.74 times more return on investment than DOW. However, Oberweis Small-Cap is 1.74 times more volatile than DOW. It trades about 0.07 of its potential returns per unit of risk. DOW is currently generating about 0.04 per unit of risk. If you would invest  1,245  in Oberweis Small-Cap Opportunities on May 18, 2022 and sell it today you would earn a total of  804.00  from holding Oberweis Small-Cap Opportunities or generate 64.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Oberweis Small-Cap Opportuniti  vs.  DOW

 Performance (%) 
       Timeline  

Oberweis Small-Cap and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

Oberweis Small-Cap Opportunities

Pair trading matchups for Oberweis Small-Cap

DOW

Pair trading matchups for DOW

Abeona Therapeutics vs. DOW
Microsoft Corp vs. DOW
Abbott Laboratories vs. DOW
Costco Wholesale 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 Oberweis Small-Cap and DOW

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

Oberweis Small-Cap Opportunities

Pair trading matchups for Oberweis Small-Cap

The idea behind Oberweis Small-Cap Opportunities 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

Abbott Laboratories vs. DOW
Abeona Therapeutics vs. DOW
Microsoft Corp vs. DOW
Nvidia Corp vs. DOW
Costco Wholesale vs. DOW
McDonalds 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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