Correlation Between Fidelity Info and DOW

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

Diversification Opportunities for Fidelity Info and DOW

0.96
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Fidelity and DOW is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Info Tech and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Fidelity Info 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 Fidelity Info Tech 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 Fidelity Info i.e., Fidelity Info and DOW go up and down completely randomly.
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Pair Corralation between Fidelity Info and DOW

Given the investment horizon of 90 days Fidelity Info Tech is expected to generate 1.64 times more return on investment than DOW. However, Fidelity Info is 1.64 times more volatile than DOW. It trades about 0.03 of its potential returns per unit of risk. DOW is currently generating about 0.04 per unit of risk. If you would invest  8,404  in Fidelity Info Tech on March 31, 2022 and sell it today you would earn a total of  1,386  from holding Fidelity Info Tech or generate 16.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Fidelity Info Tech  vs.  DOW

 Performance (%) 
      Timeline 

Fidelity Info and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

Fidelity Info Tech

Pair trading matchups for Fidelity Info

DOW

Pair trading matchups for DOW

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Daqo New vs. DOW
Kroger vs. DOW
TOURMALINE OIL vs. DOW
Radian vs. DOW
Star Bulk vs. DOW
American Manganese vs. DOW
Valhi vs. DOW
Walgreens Boots vs. DOW
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U S 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 Fidelity Info and DOW

The main advantage of trading using opposite Fidelity Info and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Info 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.

Fidelity Info Tech

Pair trading matchups for Fidelity Info

The idea behind Fidelity Info Tech 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

Stealthgas vs. DOW
Pacific Gas vs. DOW
Genie Energy vs. DOW
TOURMALINE OIL vs. DOW
Gran Tierra vs. DOW
Daqo New vs. DOW
Mesabi Trust vs. DOW
Star Bulk vs. DOW
San Juan vs. DOW
U S 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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