Correlation Between Dow and Commercial Metals
Can any of the company-specific risk be diversified away by investing in both Dow and Commercial Metals 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 Dow and Commercial Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Commercial Metals, you can compare the effects of market volatilities on Dow and Commercial Metals 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 Dow with a short position of Commercial Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Commercial Metals.
Diversification Opportunities for Dow and Commercial Metals
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Commercial is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals and Dow 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 Dow Inc are associated (or correlated) with Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of Dow i.e., Dow and Commercial Metals go up and down completely randomly.
Pair Corralation between Dow and Commercial Metals
Considering the 90-day investment horizon Dow Inc is expected to under-perform the Commercial Metals. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 1.78 times less risky than Commercial Metals. The stock trades about -0.17 of its potential returns per unit of risk. The Commercial Metals is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,405 in Commercial Metals on August 23, 2024 and sell it today you would earn a total of 639.00 from holding Commercial Metals or generate 11.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Commercial Metals
Performance |
| Timeline |
| Dow Inc |
| Commercial Metals |
Dow and Commercial Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Commercial Metals
The main advantage of trading using opposite Dow and Commercial Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Commercial Metals 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 Commercial Metals will offset losses from the drop in Commercial Metals' long position.The idea behind Dow Inc and Commercial Metals 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.| Commercial Metals vs. Olympic Steel | Commercial Metals vs. Steel Dynamics | Commercial Metals vs. Nucor Corp | Commercial Metals vs. Universal Stainless Alloy |
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 the Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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