Correlation Between Dow and Methanex
Can any of the company-specific risk be diversified away by investing in both Dow and Methanex 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 Methanex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Methanex, you can compare the effects of market volatilities on Dow and Methanex 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 Methanex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Methanex.
Diversification Opportunities for Dow and Methanex
Good diversification
The 3 months correlation between Dow and Methanex is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Methanex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methanex 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 Methanex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methanex has no effect on the direction of Dow i.e., Dow and Methanex go up and down completely randomly.
Pair Corralation between Dow and Methanex
Considering the 90-day investment horizon Dow is expected to generate 10.97 times less return on investment than Methanex. But when comparing it to its historical volatility, Dow Inc is 1.72 times less risky than Methanex. It trades about 0.01 of its potential returns per unit of risk. Methanex is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,603 in Methanex on August 28, 2024 and sell it today you would earn a total of 1,026 from holding Methanex or generate 28.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Methanex
Performance |
| Timeline |
| Dow Inc |
| Methanex |
Dow and Methanex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Methanex
The main advantage of trading using opposite Dow and Methanex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Methanex 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 Methanex will offset losses from the drop in Methanex's long position.The idea behind Dow Inc and Methanex 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.| Methanex vs. AdvanSix | Methanex vs. Lsb Industries | Methanex vs. Green Plains Renewable | Methanex vs. Tronox Holdings PLC |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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