Correlation Between ConocoPhillips and DOW

By analyzing existing cross correlation between ConocoPhillips and DOW, you can compare the effects of market volatilities on ConocoPhillips and DOW 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 ConocoPhillips with a short position of DOW. Check out your portfolio center. Please also check ongoing floating volatility patterns of ConocoPhillips and DOW.

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

Diversification Opportunities for ConocoPhillips and DOW

0.45
  Correlation Coefficient
ConocoPhillips
DOW

Very weak diversification

The 3 months correlation between ConocoPhillips and DOW is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding ConocoPhillips and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW and ConocoPhillips 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 ConocoPhillips are associated (or correlated) with DOW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOW has no effect on the direction of ConocoPhillips i.e., ConocoPhillips and DOW go up and down completely randomly.
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Pair Corralation between ConocoPhillips and DOW

Considering the 90-day investment horizon ConocoPhillips is expected to under-perform the DOW. In addition to that, ConocoPhillips is 2.37 times more volatile than DOW. It trades about -0.12 of its total potential returns per unit of risk. DOW is currently generating about -0.25 per unit of volatility. If you would invest  3,632,795  in DOW on September 6, 2021 and sell it today you would lose (174,787)  from holding DOW or give up 4.81% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

ConocoPhillips  vs.  DOW

 Performance (%) 
      Timeline 

ConocoPhillips and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

ConocoPhillips

Pair trading matchups for ConocoPhillips

DOW

Pair trading matchups for DOW

Alphabet vs. DOW
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Meta Platforms vs. DOW
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Salesforce 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 ConocoPhillips and DOW

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

ConocoPhillips

Pair trading matchups for ConocoPhillips

The idea behind ConocoPhillips and DOW 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.

DOW

Pair trading matchups for DOW

Twitter vs. DOW
Alphabet vs. DOW
Salesforce vs. DOW
Microsoft Corp vs. DOW
Ford vs. DOW
Du Pont vs. DOW
Meta Platforms vs. DOW
Sentinelone Inc vs. DOW
Visa vs. DOW
Walker Dunlop 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.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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