Correlation Between Dow and Salesforce

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

Diversification Opportunities for Dow and Salesforce

0.68
  Correlation Coefficient

Poor diversification

The 3 months correlation between Dow and Salesforce is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of Dow i.e., Dow and Salesforce go up and down completely randomly.

Pair Corralation between Dow and Salesforce

Considering the 90-day investment horizon Dow Inc is expected to generate 0.58 times more return on investment than Salesforce. However, Dow Inc is 1.71 times less risky than Salesforce. It trades about 0.21 of its potential returns per unit of risk. Salesforce is currently generating about 0.03 per unit of risk. If you would invest  5,557  in Dow Inc on December 29, 2023 and sell it today you would earn a total of  257.00  from holding Dow Inc or generate 4.62% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Dow Inc  vs.  Salesforce

 Performance 
       Timeline  
Dow Inc 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dow may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Salesforce 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Salesforce are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Salesforce displayed solid returns over the last few months and may actually be approaching a breakup point.

Dow and Salesforce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dow and Salesforce

The main advantage of trading using opposite Dow and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.
The idea behind Dow Inc and Salesforce 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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