# Correlation Between DOW and Salesforce

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

### Specify exactly 2 symbols:^DJICRMAdd Two Equities

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

## Diversification Opportunities for DOW and Salesforce

 0.81 Correlation Coefficient DOW Salesforce

### Very poor diversification

The 3 months correlation between DOW and Salesforce is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Salesforce in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of DOW i.e., DOW and Salesforce go up and down completely randomly.

## Pair Corralation between DOW and Salesforce

Given the investment horizon of 90 days DOW is expected to generate 2.39 times less return on investment than Salesforce. But when comparing it to its historical volatility, DOW is 1.54 times less risky than Salesforce. It trades about 0.03 of its potential returns per unit of risk. Salesforce is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  16,196  in Salesforce on September 4, 2021 and sell it today you would earn a total of  9,924  from holding Salesforce or generate 61.27% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Together Strength Strong Accuracy 100.0% Values Daily Returns

## DOW  vs.  Salesforce

 Performance (%)
 Timeline

## DOW and Salesforce Volatility Contrast

 Predicted Return Density
 Returns

## DOW

### Pair trading matchups for DOW

 Vmware vs. DOW Ford vs. DOW Visa vs. DOW Twitter vs. DOW GM vs. DOW Meta Platforms vs. DOW Sentinelone Inc vs. DOW Du Pont vs. DOW Alphabet vs. DOW Microsoft Corp 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 Salesforce

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

## DOW

### Pair trading matchups for DOW

 Meta Platforms vs. DOW Du Pont vs. DOW Ford vs. DOW Walker Dunlop vs. DOW Twitter vs. DOW GM vs. DOW Sentinelone Inc vs. DOW Visa vs. DOW Alphabet 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 Salesforce 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.

## Salesforce

### Pair trading matchups for Salesforce

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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