Correlation Between GX Nasdaq-100 and DOW

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Can any of the company-specific risk be diversified away by investing in both GX Nasdaq-100 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 GX Nasdaq-100 and DOW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GX Nasdaq-100 Covered and DOW, you can compare the effects of market volatilities on GX Nasdaq-100 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 GX Nasdaq-100 with a short position of DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of GX Nasdaq-100 and DOW.

Diversification Opportunities for GX Nasdaq-100 and DOW

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between GX Nasdaq-100 and DOW is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding GX Nasdaq-100 Covered and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and GX Nasdaq-100 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 GX Nasdaq-100 Covered 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 GX Nasdaq-100 i.e., GX Nasdaq-100 and DOW go up and down completely randomly.
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Pair Corralation between GX Nasdaq-100 and DOW

Given the investment horizon of 90 days GX Nasdaq-100 is expected to generate 2.32 times less return on investment than DOW. In addition to that, GX Nasdaq-100 is 1.08 times more volatile than DOW. It trades about 0.01 of its total potential returns per unit of risk. DOW is currently generating about 0.04 per unit of volatility. If you would invest  2,664,259  in DOW on April 5, 2022 and sell it today you would earn a total of  445,467  from holding DOW or generate 16.72% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

GX Nasdaq-100 Covered  vs.  DOW

 Performance (%) 
      Timeline 

GX Nasdaq-100 and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

GX Nasdaq-100 Covered

Pair trading matchups for GX Nasdaq-100

DOW

Pair trading matchups for DOW

Visa vs. DOW
ATT vs. DOW
GLAXOSMITHKLINE PLC vs. DOW
Vmware vs. DOW
BP PLC vs. DOW
Alphabet vs. DOW
Alzamend Neuro vs. DOW
Liquidia Corp vs. DOW
Arca Biopharma vs. DOW
Calyxt vs. DOW
International Business vs. DOW
Cyclacel Pharmaceuti 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 GX Nasdaq-100 and DOW

The main advantage of trading using opposite GX Nasdaq-100 and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GX Nasdaq-100 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.

GX Nasdaq-100 Covered

Pair trading matchups for GX Nasdaq-100

The idea behind GX Nasdaq-100 Covered 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

Liquidia Corp vs. DOW
Sentinelone Inc vs. DOW
International Business vs. DOW
Arca Biopharma vs. DOW
Seneca Foods vs. DOW
Solo Brands vs. DOW
Cyclacel Pharmaceuti vs. DOW
RENEWI PLC vs. DOW
ATT vs. DOW
Vmware vs. DOW
Context Therapeutics 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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