Correlation Between DOW and Rogers Corp

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

Diversification Opportunities for DOW and Rogers Corp

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between DOW and Rogers is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Rogers Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rogers Corp 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 Rogers Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rogers Corp has no effect on the direction of DOW i.e., DOW and Rogers Corp go up and down completely randomly.
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Pair Corralation between DOW and Rogers Corp

Given the investment horizon of 90 days DOW is expected to under-perform the Rogers Corp. In addition to that, DOW is 1.68 times more volatile than Rogers Corp. It trades about -0.09 of its total potential returns per unit of risk. Rogers Corp is currently generating about -0.1 per unit of volatility. If you would invest  27,210  in Rogers Corp on April 3, 2022 and sell it today you would lose (1,110)  from holding Rogers Corp or give up 4.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

DOW  vs.  Rogers Corp

 Performance (%) 
      Timeline 

DOW and Rogers Corp Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Visa vs. DOW
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Vmware vs. DOW
Alphabet vs. DOW
Novan vs. DOW
International Business vs. DOW
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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.

Rogers Corp

Pair trading matchups for Rogers Corp

Pair Trading with DOW and Rogers Corp

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

DOW

Pair trading matchups for DOW

Calyxt vs. DOW
Cyclacel Pharmaceuti vs. DOW
International Business vs. DOW
Vmware vs. DOW
Visa vs. DOW
Alphabet vs. DOW
Novan vs. DOW
GLAXOSMITHKLINE PLC vs. DOW
ATT vs. DOW
Seneca Foods vs. DOW
BP PLC vs. DOW
Sentinelone Inc 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 Rogers Corp 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.

Rogers Corp

Pair trading matchups for Rogers Corp

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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