Correlation Between Dow and Celanese

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

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

Diversification Opportunities for Dow and Celanese

0.9

Correlation Coefficient

Dow  Celanese

Almost no diversification

The 3 months correlation between Dow and Celanese is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Celanese in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Celanese 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 Inc are associated (or correlated) with Celanese. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Celanese has no effect on the direction of Dow i.e., Dow and Celanese go up and down completely randomly.

Pair Corralation between Dow and Celanese

Considering the 90-day investment horizon Dow is expected to generate 1.74 times less return on investment than Celanese. But when comparing it to its historical volatility, Dow Inc is 1.39 times less risky than Celanese. It trades about 0.12 of its potential returns per unit of risk. Celanese is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  11,542  in Celanese on January 17, 2024 and sell it today you would earn a total of  4,036  from holding Celanese or generate 34.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Dow Inc  vs.  Celanese

Dow Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dow may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Celanese

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Celanese are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Celanese may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Dow and Celanese

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

The idea behind Dow Inc and Celanese 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 the Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..