Correlation Between DOW and Khiron Life

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

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

Diversification Opportunities for DOW and Khiron Life

-0.15
  Correlation Coefficient
DOW
Khiron Life Sciences

Good diversification

The 3 months correlation between DOW and Khiron is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Khiron Life Sciences in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Khiron Life Sciences 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 Khiron Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Khiron Life Sciences has no effect on the direction of DOW i.e., DOW and Khiron Life go up and down completely randomly.
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Pair Corralation between DOW and Khiron Life

Given the investment horizon of 90 days DOW is expected to generate 0.17 times more return on investment than Khiron Life. However, DOW is 5.75 times less risky than Khiron Life. It trades about 0.04 of its potential returns per unit of risk. Khiron Life Sciences is currently generating about 0.0 per unit of risk. If you would invest  2,709,072  in DOW on July 18, 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 Against 
StrengthInsignificant
Accuracy16.67%
ValuesDaily Returns

DOW  vs.  Khiron Life Sciences

 Performance (%) 
      Timeline 

DOW and Khiron Life Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Visa vs. DOW
GM vs. DOW
Upstart Holdings vs. DOW
Microsoft Corp vs. DOW
Citigroup vs. DOW
Facebook vs. DOW
Salesforce vs. DOW
Vmware vs. DOW
Walker Dunlop vs. DOW
High Dividend 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.

Pair Trading with DOW and Khiron Life

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

DOW

Pair trading matchups for DOW

Upstart Holdings vs. DOW
High Dividend vs. DOW
Walker Dunlop vs. DOW
General Mills vs. DOW
Salesforce vs. DOW
Vmware vs. DOW
Main Street vs. DOW
Square vs. DOW
GM vs. DOW
Realty Income 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.
The idea behind DOW and Khiron Life Sciences 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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