Correlation Between First Eagle and DOW

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

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

Diversification Opportunities for First Eagle and DOW

0.51
  Correlation Coefficient
First Eagle High
DOW

Very weak diversification

The 3 months correlation between First and DOW is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding First Eagle High and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW and First Eagle 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 First Eagle High 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 First Eagle i.e., First Eagle and DOW go up and down completely randomly.
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Pair Corralation between First Eagle and DOW

Assuming the 90 days horizon First Eagle High is expected to generate 0.17 times more return on investment than DOW. However, First Eagle High is 5.8 times less risky than DOW. It trades about -0.07 of its potential returns per unit of risk. DOW is currently generating about -0.06 per unit of risk. If you would invest  895.00  in First Eagle High on October 23, 2021 and sell it today you would lose (4.00)  from holding First Eagle High or give up 0.45% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.12%
ValuesDaily Returns

First Eagle High  vs.  DOW

 Performance (%) 
      Timeline 

First Eagle and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Microsoft Corp vs. DOW
Fidelity Total vs. DOW
FTSE All-World vs. DOW
Alphabet vs. DOW
Advantage Solutions vs. DOW
Total Intl vs. DOW
Fidelity Total vs. DOW
GM vs. DOW
Total Stock vs. DOW
FTSE EM vs. DOW
Fidelity International 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 First Eagle and DOW

The main advantage of trading using opposite First Eagle and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Eagle 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.
The idea behind First Eagle High 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

Total Intl vs. DOW
FTSE EM vs. DOW
Fidelity Health vs. DOW
Visa vs. DOW
Fidelity International vs. DOW
Boston Omaha vs. DOW
Fidelity Total vs. DOW
Total Stock vs. DOW
FTSE All-World vs. DOW
Fidelity 500 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.
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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