Correlation Between Dow and Solvay SA
Can any of the company-specific risk be diversified away by investing in both Dow and Solvay SA 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 Solvay SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Solvay SA, you can compare the effects of market volatilities on Dow and Solvay SA 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 Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Solvay SA.
Diversification Opportunities for Dow and Solvay SA
Very weak diversification
The 3 months correlation between Dow and Solvay is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Solvay SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA 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 Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA has no effect on the direction of Dow i.e., Dow and Solvay SA go up and down completely randomly.
Pair Corralation between Dow and Solvay SA
Considering the 90-day investment horizon Dow Inc is expected to generate 0.52 times more return on investment than Solvay SA. However, Dow Inc is 1.91 times less risky than Solvay SA. It trades about -0.19 of its potential returns per unit of risk. Solvay SA is currently generating about -0.24 per unit of risk. If you would invest 4,720 in Dow Inc on September 3, 2024 and sell it today you would lose (299.00) from holding Dow Inc or give up 6.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Inc vs. Solvay SA
Performance |
| Timeline |
| Dow Inc |
| Solvay SA |
Dow and Solvay SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Solvay SA
The main advantage of trading using opposite Dow and Solvay SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Solvay SA 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 Solvay SA will offset losses from the drop in Solvay SA's long position.The idea behind Dow Inc and Solvay SA 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.| Solvay SA vs. Orbia Advance | Solvay SA vs. Sumitomo Chemical Co | Solvay SA vs. Braskem SA Class | Solvay SA vs. Dow Inc |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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