Correlation Between DOW and Nationwide Investor

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

Specify exactly 2 symbols:

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

Diversification Opportunities for DOW and Nationwide Investor

0.71
  Correlation Coefficient
DOW
Nationwide Investor

Poor diversification

The 3 months correlation between DOW and Nationwide is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Nationwide Investor Destinatio in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Investor 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 Nationwide Investor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Investor has no effect on the direction of DOW i.e., DOW and Nationwide Investor go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Nationwide Investor

Given the investment horizon of 90 days DOW is expected to generate 4.27 times more return on investment than Nationwide Investor. However, DOW is 4.27 times more volatile than Nationwide Investor Destinations. It trades about 0.04 of its potential returns per unit of risk. Nationwide Investor Destinations is currently generating about 0.04 per unit of risk. If you would invest  2,709,072  in DOW on July 19, 2021 and sell it today you would earn a total of  820,404  from holding DOW or generate 30.28% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.6%
ValuesDaily Returns

DOW  vs.  Nationwide Investor Destinatio

 Performance (%) 
      Timeline 

DOW and Nationwide Investor Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Salesforce vs. DOW
High Dividend vs. DOW
Facebook vs. DOW
Flowers Foods vs. DOW
Realty Income vs. DOW
Citigroup vs. DOW
GM vs. DOW
Walker Dunlop vs. DOW
Upstart Holdings vs. DOW
Vmware 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 Nationwide Investor

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

DOW

Pair trading matchups for DOW

Flowers Foods vs. DOW
GM vs. DOW
Visa vs. DOW
Facebook vs. DOW
Upstart Holdings vs. DOW
Salesforce vs. DOW
Walker Dunlop vs. DOW
Vmware vs. DOW
Microsoft Corp vs. DOW
Realty Income 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 Nationwide Investor Destinations 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

Other Complementary Tools

Balance Of Power
Check stock momentum by analyzing Balance Of Power indicator and other technical ratios
Go
Probability Of Bankruptcy
Get analysis of equity chance of financial distress in the next 2 years
Go
Alpha Finder
Use alpha and beta coefficients to find investment opportunities after accounting for the risk
Go
Watchlist Optimization
Optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm
Go
Money Managers
Screen money managers from public funds and ETFs managed around the world
Go
Idea Analyzer
Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas
Go
Portfolio Optimization
Compute new portfolio that will generate highest expected return given your specified tolerance for risk
Go
CEO Directory
Screen CEOs from public companies around the world
Go
Focused Opportunities
Build portfolios using our predefined set of ideas and optimize them against your investing preferences
Go
Financial Widgets
Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets
Go
Money Flow Index
Determine momentum by analyzing Money Flow Index and other technical indicators
Go