Correlation Between Dow and First Graphene
Can any of the company-specific risk be diversified away by investing in both Dow and First Graphene 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 First Graphene into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and First Graphene, you can compare the effects of market volatilities on Dow and First Graphene 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 First Graphene. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and First Graphene.
Diversification Opportunities for Dow and First Graphene
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and First is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene 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 First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of Dow i.e., Dow and First Graphene go up and down completely randomly.
Pair Corralation between Dow and First Graphene
Considering the 90-day investment horizon Dow Inc is expected to generate 0.16 times more return on investment than First Graphene. However, Dow Inc is 6.31 times less risky than First Graphene. It trades about -0.26 of its potential returns per unit of risk. First Graphene is currently generating about -0.11 per unit of risk. If you would invest 5,011 in Dow Inc on August 28, 2024 and sell it today you would lose (424.00) from holding Dow Inc or give up 8.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Dow Inc vs. First Graphene
Performance |
| Timeline |
| Dow Inc |
| First Graphene |
Dow and First Graphene Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and First Graphene
The main advantage of trading using opposite Dow and First Graphene positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, First Graphene 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 First Graphene will offset losses from the drop in First Graphene's long position.The idea behind Dow Inc and First Graphene 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.| First Graphene vs. Haydale Graphene Industries | First Graphene vs. Versarien plc | First Graphene vs. NanoXplore | First Graphene vs. G6 Materials Corp |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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