Correlation Between DOW and Nuveen Santa

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

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

Diversification Opportunities for DOW and Nuveen Santa

0.91
  Correlation Coefficient
DOW
Nuveen Santa Barbara

Almost no diversification

The 3 months correlation between DOW and Nuveen is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Nuveen Santa Barbara in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Santa Barbara 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 Nuveen Santa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Santa Barbara has no effect on the direction of DOW i.e., DOW and Nuveen Santa go up and down completely randomly.
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Pair Corralation between DOW and Nuveen Santa

Given the investment horizon of 90 days DOW is expected to under-perform the Nuveen Santa. In addition to that, DOW is 1.4 times more volatile than Nuveen Santa Barbara. It trades about -0.24 of its total potential returns per unit of risk. Nuveen Santa Barbara is currently generating about -0.19 per unit of volatility. If you would invest  3,403  in Nuveen Santa Barbara on September 1, 2021 and sell it today you would lose (72.00)  from holding Nuveen Santa Barbara or give up 2.12% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy95.24%
ValuesDaily Returns

DOW  vs.  Nuveen Santa Barbara

 Performance (%) 
      Timeline 

DOW and Nuveen Santa Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

GM vs. DOW
Arweave vs. DOW
Bitcoin vs. DOW
SysCoin vs. DOW
Arcbest Corp vs. DOW
Bitcoin SV vs. DOW
Bitcoin Cash vs. DOW
Tesla vs. DOW
Smart Bitcoin 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 Nuveen Santa

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

DOW

Pair trading matchups for DOW

Microsoft Corp vs. DOW
Bitcoin Cash vs. DOW
SysCoin vs. DOW
GM vs. DOW
Smart Bitcoin vs. DOW
Plug Power vs. DOW
Calumet Specialty vs. DOW
Bitcoin vs. DOW
Expensify Inc vs. DOW
Salesforce vs. DOW
Arcbest 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 Nuveen Santa Barbara 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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