Correlation Between Dow and Origin Materials
Can any of the company-specific risk be diversified away by investing in both Dow and Origin Materials 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 Origin Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Origin Materials, you can compare the effects of market volatilities on Dow and Origin Materials 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 Origin Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Origin Materials.
Diversification Opportunities for Dow and Origin Materials
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Origin is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Origin Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Materials 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 Origin Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Materials has no effect on the direction of Dow i.e., Dow and Origin Materials go up and down completely randomly.
Pair Corralation between Dow and Origin Materials
Considering the 90-day investment horizon Dow Inc is expected to generate 0.2 times more return on investment than Origin Materials. However, Dow Inc is 5.09 times less risky than Origin Materials. It trades about -0.01 of its potential returns per unit of risk. Origin Materials is currently generating about 0.0 per unit of risk. If you would invest 5,025 in Dow Inc on August 28, 2024 and sell it today you would lose (438.00) from holding Dow Inc or give up 8.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.79% |
| Values | Daily Returns |
Dow Inc vs. Origin Materials
Performance |
| Timeline |
| Dow Inc |
| Origin Materials |
Dow and Origin Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Origin Materials
The main advantage of trading using opposite Dow and Origin Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Origin Materials 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 Origin Materials will offset losses from the drop in Origin Materials' long position.The idea behind Dow Inc and Origin Materials 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.| Origin Materials vs. Tronox Holdings PLC | Origin Materials vs. Valhi Inc | Origin Materials vs. Lsb Industries | Origin Materials vs. Huntsman |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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