Correlation Between Dow and Kaiser Aluminum
Can any of the company-specific risk be diversified away by investing in both Dow and Kaiser Aluminum 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 Kaiser Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Kaiser Aluminum, you can compare the effects of market volatilities on Dow and Kaiser Aluminum 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 Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Kaiser Aluminum.
Diversification Opportunities for Dow and Kaiser Aluminum
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dow and Kaiser is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Dow i.e., Dow and Kaiser Aluminum go up and down completely randomly.
Pair Corralation between Dow and Kaiser Aluminum
Considering the 90-day investment horizon Dow Inc is expected to under-perform the Kaiser Aluminum. In addition to that, Dow is 1.13 times more volatile than Kaiser Aluminum. It trades about -0.13 of its total potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.09 per unit of volatility. If you would invest 7,291 in Kaiser Aluminum on November 18, 2024 and sell it today you would lose (266.00) from holding Kaiser Aluminum or give up 3.65% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Kaiser Aluminum
Performance |
| Timeline |
| Dow Inc |
| Kaiser Aluminum |
Dow and Kaiser Aluminum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Kaiser Aluminum
The main advantage of trading using opposite Dow and Kaiser Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Kaiser Aluminum 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 Kaiser Aluminum will offset losses from the drop in Kaiser Aluminum's long position.The idea behind Dow Inc and Kaiser Aluminum 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.| Kaiser Aluminum vs. Century Aluminum | Kaiser Aluminum vs. China Hongqiao Group | Kaiser Aluminum vs. Constellium Nv | Kaiser Aluminum vs. Alcoa 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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