Correlation Between DOW and Baron Real

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

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

Diversification Opportunities for DOW and Baron Real

0.55
  Correlation Coefficient
DOW
Baron Real Estate

Very weak diversification

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

Given the investment horizon of 90 days DOW is expected to generate 0.64 times more return on investment than Baron Real. However, DOW is 1.56 times less risky than Baron Real. It trades about 0.02 of its potential returns per unit of risk. Baron Real Estate is currently generating about -0.11 per unit of risk. If you would invest  3,432,646  in DOW on September 1, 2021 and sell it today you would earn a total of  15,726  from holding DOW or generate 0.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Baron Real Estate

 Performance (%) 
      Timeline 

DOW and Baron Real Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Microsoft Corp vs. DOW
Twitter vs. DOW
Visa vs. DOW
Sentinelone Inc vs. DOW
Alphabet vs. DOW
GM vs. DOW
Vmware vs. DOW
Walker Dunlop vs. DOW
Du Pont vs. DOW
Ford vs. DOW
Meta Platforms 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 Baron Real

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

DOW

Pair trading matchups for DOW

Du Pont vs. DOW
Sentinelone Inc vs. DOW
Ford vs. DOW
Meta Platforms vs. DOW
Visa vs. DOW
Vmware vs. DOW
Alphabet vs. DOW
Twitter 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 Baron Real Estate 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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