Correlation Between DOW and Morant Wright

By analyzing existing cross correlation between DOW and Morant Wright Funds, you can compare the effects of market volatilities on DOW and Morant Wright 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 Morant Wright. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Morant Wright.

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Can any of the company-specific risk be diversified away by investing in both DOW and Morant Wright 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 Morant Wright into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for DOW and Morant Wright

-0.55
  Correlation Coefficient
DOW
Morant Wright Funds

Excellent diversification

The 3 months correlation between DOW and Morant is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Morant Wright Funds P in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Morant Wright Funds 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 are associated (or correlated) with Morant Wright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morant Wright Funds has no effect on the direction of DOW i.e., DOW and Morant Wright go up and down completely randomly.
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Pair Corralation between DOW and Morant Wright

Given the investment horizon of 90 days DOW is expected to generate 2.56 times less return on investment than Morant Wright. But when comparing it to its historical volatility, DOW is 1.54 times less risky than Morant Wright. It trades about 0.04 of its potential returns per unit of risk. Morant Wright Funds is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  160,456  in Morant Wright Funds on July 25, 2021 and sell it today you would earn a total of  5,050  from holding Morant Wright Funds or generate 3.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy80.0%
ValuesDaily Returns

DOW  vs.  Morant Wright Funds P

 Performance (%) 
      Timeline 

DOW and Morant Wright Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

ANDREW PELLER vs. DOW
Mountain Valley vs. DOW
Manulife Financial vs. DOW
Alphabet vs. DOW
CORUS ENTERTAINMENT vs. DOW
Sentinelone Inc vs. DOW
GM vs. DOW
Total SE vs. DOW
ALGONQUIN POWER vs. DOW
Freeport Mcmoran vs. DOW
Plantfuel Life vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.

Morant Wright Funds

Pair trading matchups for Morant Wright

Pair Trading with DOW and Morant Wright

The main advantage of trading using opposite DOW and Morant Wright positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DOW position performs unexpectedly, Morant Wright 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 Morant Wright will offset losses from the drop in Morant Wright's long position.

DOW

Pair trading matchups for DOW

ALGONQUIN POWER vs. DOW
BIRCHCLIFF ENERGY vs. DOW
Alphabet vs. DOW
Mountain Valley vs. DOW
Total SE vs. DOW
Manulife Financial vs. DOW
GM vs. DOW
ANDREW PELLER vs. DOW
Sentinelone Inc vs. DOW
Freeport Mcmoran vs. DOW
Ford vs. DOW
Salesforce vs. DOW
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against DOW as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. DOW's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, DOW's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to DOW.
The idea behind DOW and Morant Wright Funds 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.

Morant Wright Funds

Pair trading matchups for Morant Wright

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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.

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