Correlation Between DOW and Boeing

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

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

Diversification Opportunities for DOW and Boeing

-0.38
  Correlation Coefficient
DOW
Boeing Company

Very good diversification

The 3 months correlation between DOW and Boeing is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Boeing Company in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Boeing Company 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing Company has no effect on the direction of DOW i.e., DOW and Boeing go up and down completely randomly.
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Pair Corralation between DOW and Boeing

Given the investment horizon of 90 days DOW is expected to generate 0.32 times more return on investment than Boeing. However, DOW is 3.17 times less risky than Boeing. It trades about -0.03 of its potential returns per unit of risk. Boeing Company is currently generating about -0.04 per unit of risk. If you would invest  3,482,335  in DOW on June 22, 2021 and sell it today you would lose (23,847)  from holding DOW or give up 0.68% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Boeing Company

 Performance (%) 
      Timeline 

DOW and Boeing Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

TRON vs. DOW
Brazilian Digital vs. DOW
Aave vs. DOW
Bitcoin vs. DOW
Ethereum vs. DOW
MATH vs. DOW
Ocean Protocol 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.

Boeing Company

Pair trading matchups for Boeing

Pair Trading with DOW and Boeing

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

DOW

Pair trading matchups for DOW

TRON vs. DOW
Ethereum vs. DOW
Aave vs. DOW
Bitcoin vs. DOW
MATH vs. DOW
Ocean Protocol 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 Boeing Company 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.

Boeing Company

Pair trading matchups for Boeing

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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