Correlation Between DOW and Holbrook Income

Specify exactly 2 symbols:
Can any of the company-specific risk be diversified away by investing in both DOW and Holbrook Income 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 Holbrook Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DOW and Holbrook Income, you can compare the effects of market volatilities on DOW and Holbrook Income 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 Holbrook Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of DOW and Holbrook Income.

Diversification Opportunities for DOW and Holbrook Income

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between DOW and Holbrook is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Holbrook Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holbrook Income 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 Holbrook Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holbrook Income has no effect on the direction of DOW i.e., DOW and Holbrook Income go up and down completely randomly.
    Optimize

Pair Corralation between DOW and Holbrook Income

Given the investment horizon of 90 days DOW is expected to under-perform the Holbrook Income. In addition to that, DOW is 9.02 times more volatile than Holbrook Income. It trades about -0.07 of its total potential returns per unit of risk. Holbrook Income is currently generating about -0.15 per unit of volatility. If you would invest  1,017  in Holbrook Income on April 7, 2022 and sell it today you would lose (9.00)  from holding Holbrook Income or give up 0.88% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy97.5%
ValuesDaily Returns

DOW  vs.  Holbrook Income

 Performance (%) 
      Timeline 

DOW and Holbrook Income Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Alpha Metallurgical vs. DOW
Penn Natl vs. DOW
Halliburton vs. DOW
United Fire vs. DOW
Bancfirst Corp vs. DOW
Twitter vs. DOW
Interactive Brokers vs. DOW
MP Materials vs. DOW
Eastgroup Properties vs. DOW
Purecycle Technologies vs. DOW
Mandiant vs. DOW
GM 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.

Holbrook Income

Pair trading matchups for Holbrook Income

Pair Trading with DOW and Holbrook Income

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

DOW

Pair trading matchups for DOW

ATT vs. DOW
Bancfirst Corp vs. DOW
Ezcorp vs. DOW
Twitter vs. DOW
Alpha Metallurgical vs. DOW
MP Materials vs. DOW
Erie Indemnity vs. DOW
Ollies Bargain vs. DOW
Freyr Battery vs. DOW
Penn Natl vs. DOW
Mandiant vs. DOW
Halliburton 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 Holbrook Income 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.

Holbrook Income

Pair trading matchups for Holbrook Income

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

Other Complementary Tools

Efficient Frontier
Plot and analyze your portfolio and positions against risk-return landscape of the market.
Go
My Watchlist Analysis
Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like
Go
Price Exposure Probability
Analyze equity upside and downside potential for a given time horizon across multiple markets
Go
Equity Analysis
Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities
Go
Companies Directory
Evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals
Go
Premium Stories
Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope
Go
Risk-Return Analysis
View associations between returns expected from investment and the risk you assume
Go