Correlation Between CatalystTeza Algorithmic and DOW

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

Diversification Opportunities for CatalystTeza Algorithmic and DOW

-0.21
  Correlation Coefficient

Very good diversification

The 3 months correlation between CatalystTeza and DOW is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding CatalystTeza Algorithmic Alloc and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and CatalystTeza Algorithmic 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 CatalystTeza Algorithmic Alloc 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 CatalystTeza Algorithmic i.e., CatalystTeza Algorithmic and DOW go up and down completely randomly.
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Pair Corralation between CatalystTeza Algorithmic and DOW

Assuming the 90 days horizon CatalystTeza Algorithmic Alloc is expected to under-perform the DOW. But the mutual fund apears to be less risky and, when comparing its historical volatility, CatalystTeza Algorithmic Alloc is 1.62 times less risky than DOW. The mutual fund trades about -0.11 of its potential returns per unit of risk. The DOW is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  2,883,752  in DOW on July 4, 2022 and sell it today you would lose (11,201)  from holding DOW or give up 0.39% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy90.38%
ValuesDaily Returns

CatalystTeza Algorithmic Alloc  vs.  DOW

 Performance (%) 
       Timeline  

CatalystTeza Algorithmic and DOW Volatility Contrast

   Predicted Return Density   
       Returns  

CatalystTeza Algorithmic Alloc

Pair trading matchups for CatalystTeza Algorithmic

DOW

Pair trading matchups for 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 CatalystTeza Algorithmic and DOW

The main advantage of trading using opposite CatalystTeza Algorithmic and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CatalystTeza Algorithmic 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.
CatalystTeza Algorithmic vs. Chevron Corp
The idea behind CatalystTeza Algorithmic Alloc 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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