# Correlation Between Montauk Renewables and DOW

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

## Diversification Opportunities for Montauk Renewables and DOW

 -0.58 Correlation Coefficient

### Excellent diversification

The 3 months correlation between Montauk and DOW is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Montauk Renewables and DOW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOW and Montauk Renewables 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 Montauk Renewables 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 Montauk Renewables i.e., Montauk Renewables and DOW go up and down completely randomly.

## Pair Corralation between Montauk Renewables and DOW

Given the investment horizon of 90 days Montauk Renewables is expected to generate 3.34 times more return on investment than DOW. However, Montauk Renewables is 3.34 times more volatile than DOW. It trades about 0.04 of its potential returns per unit of risk. DOW is currently generating about -0.01 per unit of risk. If you would invest  960.00  in Montauk Renewables on September 1, 2022 and sell it today you would earn a total of  228.50  from holding Montauk Renewables or generate 23.8% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Against Strength Very Weak Accuracy 100.0% Values Daily Returns

## Montauk Renewables  vs.  DOW

 Performance (%)
 Timeline

## Montauk Renewables and DOW Volatility Contrast

 Predicted Return Density
 Returns

## DOW

### Pair trading matchups for DOW

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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 Montauk Renewables and DOW

The main advantage of trading using opposite Montauk Renewables and DOW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Montauk Renewables 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.
 Montauk Renewables vs. Sempra
The idea behind Montauk Renewables 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.
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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