Correlation Between DOW and HOT MAMAS

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

Diversification Opportunities for DOW and HOT MAMAS

0.0
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between DOW and HOT MAMAS is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DOW and HOT MAMAS FOODS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOT MAMAS FOODS 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 HOT MAMAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOT MAMAS FOODS has no effect on the direction of DOW i.e., DOW and HOT MAMAS go up and down completely randomly.
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Pair Corralation between DOW and HOT MAMAS

Given the investment horizon of 90 days DOW is expected to generate 94.51 times less return on investment than HOT MAMAS. But when comparing it to its historical volatility, DOW is 52.4 times less risky than HOT MAMAS. It trades about 0.04 of its potential returns per unit of risk. HOT MAMAS FOODS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.00  in HOT MAMAS FOODS on April 5, 2022 and sell it today you would lose (1.00)  from holding HOT MAMAS FOODS or give up 50.0% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  HOT MAMAS FOODS INC

 Performance (%) 
      Timeline 

DOW and HOT MAMAS Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Seneca Foods vs. DOW
Cyclacel Pharmaceuti vs. DOW
Sentinelone Inc vs. DOW
BP PLC vs. DOW
Solo Brands vs. DOW
MITIE GROUP vs. DOW
ATT vs. DOW
International Business vs. DOW
Alphabet vs. DOW
Novan vs. DOW
Context Therapeutics vs. DOW
Arca Biopharma 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 HOT MAMAS

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

DOW

Pair trading matchups for DOW

Seneca Foods vs. DOW
Visa vs. DOW
Alzamend Neuro vs. DOW
Vmware vs. DOW
International Business vs. DOW
ATT vs. DOW
Sentinelone Inc vs. DOW
Context Therapeutics vs. DOW
Liquidia Corp vs. DOW
GLAXOSMITHKLINE PLC vs. DOW
Novan 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 HOT MAMAS FOODS 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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