Correlation Between DOW and Agilent Technologies

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Can any of the company-specific risk be diversified away by investing in both DOW and Agilent Technologies 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 Agilent Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW and Agilent Technologies, you can compare the effects of market volatilities on DOW and Agilent Technologies 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 Agilent Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Agilent Technologies.

Diversification Opportunities for DOW and Agilent Technologies

0.93
  Correlation Coefficient

Almost no diversification

The 24 months correlation between DOW and Agilent is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Agilent Technologies in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies 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 Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of DOW i.e., DOW and Agilent Technologies go up and down completely randomly.
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Pair Corralation between DOW and Agilent Technologies

Given the investment horizon of 90 days DOW is expected to under-perform the Agilent Technologies. But the index apears to be less risky and, when comparing its historical volatility, DOW is 1.66 times less risky than Agilent Technologies. The index trades about -0.14 of its potential returns per unit of risk. The Agilent Technologies is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12,384  in Agilent Technologies on February 17, 2022 and sell it today you would lose (76.00)  from holding Agilent Technologies or give up 0.61% of portfolio value over 90 days.
Time Period24 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Agilent Technologies

 Performance (%) 
      Timeline 

DOW and Agilent Technologies Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Vmware vs. DOW
Visa vs. DOW
Sentinelone Inc vs. DOW
Walker Dunlop vs. DOW
GM vs. DOW
Citigroup vs. DOW
Microsoft Corp vs. DOW
Dynamic Energy vs. DOW
Apple 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.

Pair Trading with DOW and Agilent Technologies

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

DOW

Pair trading matchups for DOW

Citigroup vs. DOW
Microsoft Corp vs. DOW
GM vs. DOW
Vmware vs. DOW
Ford vs. DOW
John Marshall vs. DOW
Olin Corp 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 Agilent Technologies 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.
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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