Correlation Between Premier Portfolio and DOW

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

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

Diversification Opportunities for Premier Portfolio and DOW

-0.43
  Correlation Coefficient
Premier Portfolio
DOW

Very good diversification

The 3 months correlation between Premier and DOW is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Premier Portfolio Personal and DOW in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on DOW and Premier Portfolio 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 Premier Portfolio Personal 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 Premier Portfolio i.e., Premier Portfolio and DOW go up and down completely randomly.
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Pair Corralation between Premier Portfolio and DOW

Assuming the 90 days horizon Premier Portfolio Personal is expected to under-perform the DOW. But the money market fund apears to be less risky and, when comparing its historical volatility, Premier Portfolio Personal is 3.05 times less risky than DOW. The money market fund trades about -0.09 of its potential returns per unit of risk. The DOW is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,384,392  in DOW on August 31, 2021 and sell it today you would earn a total of  202,703  from holding DOW or generate 5.99% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy97.67%
ValuesDaily Returns

Premier Portfolio Personal  vs.  DOW

 Performance (%) 
      Timeline 

Premier Portfolio and DOW Volatility Contrast

 Predicted Return Density 
      Returns 

DOW

Pair trading matchups for DOW

Ford vs. DOW
Salesforce vs. DOW
Expensify Inc vs. DOW
Microsoft Corp vs. DOW
GM vs. DOW
Bitcoin SV vs. DOW
Plug Power vs. DOW
BriaCell Therapeutics vs. DOW
Arweave vs. DOW
Smart Bitcoin 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 Premier Portfolio and DOW

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

GM vs. DOW
Du Pont vs. DOW
Plug Power vs. DOW
Microsoft Corp vs. DOW
Bitcoin vs. DOW
Tesla vs. DOW
Arweave vs. DOW
SysCoin vs. DOW
Ford vs. DOW
Bitcoin Cash vs. DOW
Expensify Inc vs. DOW
Smart Bitcoin 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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