Correlation Between Dividend Growth and Dividend

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Can any of the company-specific risk be diversified away by investing in both Dividend Growth and Dividend 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 Dividend Growth and Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dividend Growth Split and Dividend 15 Split, you can compare the effects of market volatilities on Dividend Growth and Dividend 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 Dividend Growth with a short position of Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dividend Growth and Dividend.

Diversification Opportunities for Dividend Growth and Dividend

DividendDividendDiversified AwayDividendDividendDiversified Away100%
0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Dividend and Dividend is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dividend Growth Split and Dividend 15 Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dividend 15 Split and Dividend Growth 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 Dividend Growth Split are associated (or correlated) with Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dividend 15 Split has no effect on the direction of Dividend Growth i.e., Dividend Growth and Dividend go up and down completely randomly.

Pair Corralation between Dividend Growth and Dividend

Assuming the 90 days trading horizon Dividend Growth Split is expected to generate 1.41 times more return on investment than Dividend. However, Dividend Growth is 1.41 times more volatile than Dividend 15 Split. It trades about 0.39 of its potential returns per unit of risk. Dividend 15 Split is currently generating about 0.3 per unit of risk. If you would invest  1,070  in Dividend Growth Split on November 25, 2024 and sell it today you would earn a total of  37.00  from holding Dividend Growth Split or generate 3.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Dividend Growth Split  vs.  Dividend 15 Split

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -1012345
JavaScript chart by amCharts 3.21.15DGS-PA DFN-PA
       Timeline  
Dividend Growth Split 

Risk-Adjusted Performance

Strong

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Dividend Growth Split are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Dividend Growth may actually be approaching a critical reversion point that can send shares even higher in March 2025.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.310.410.510.610.710.810.91111.1
Dividend 15 Split 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Dividend 15 Split are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dividend is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb10.410.510.610.710.8

Dividend Growth and Dividend Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.07-0.75-0.43-0.110.04160.280.60.921.24 0.51.01.52.02.53.03.5
JavaScript chart by amCharts 3.21.15DGS-PA DFN-PA
       Returns  

Pair Trading with Dividend Growth and Dividend

The main advantage of trading using opposite Dividend Growth and Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dividend Growth position performs unexpectedly, Dividend 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 Dividend will offset losses from the drop in Dividend's long position.
The idea behind Dividend Growth Split and Dividend 15 Split 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.
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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 the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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