Correlation Between Dow and Small Company
Can any of the company-specific risk be diversified away by investing in both Dow and Small Company 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 Small Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Inc and Small Pany Growth, you can compare the effects of market volatilities on Dow and Small Company 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 Small Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Small Company.
Diversification Opportunities for Dow and Small Company
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Dow and Small is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Small Pany Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Growth 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 Small Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Growth has no effect on the direction of Dow i.e., Dow and Small Company go up and down completely randomly.
Pair Corralation between Dow and Small Company
Considering the 90-day investment horizon Dow Inc is expected to under-perform the Small Company. In addition to that, Dow is 2.51 times more volatile than Small Pany Growth. It trades about -0.03 of its total potential returns per unit of risk. Small Pany Growth is currently generating about 0.13 per unit of volatility. If you would invest 842.00 in Small Pany Growth on May 31, 2025 and sell it today you would earn a total of 102.00 from holding Small Pany Growth or generate 12.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.41% |
| Values | Daily Returns |
Dow Inc vs. Small Pany Growth
Performance |
| Timeline |
| Dow Inc |
| Small Pany Growth |
Dow and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dow and Small Company
The main advantage of trading using opposite Dow and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Small Company 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 Small Company will offset losses from the drop in Small Company's long position.The idea behind Dow Inc and Small Pany Growth 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.| Small Company vs. Astor Star Fund | Small Company vs. Shelton Funds | Small Company vs. Small Cap Stock | Small Company vs. Growth Allocation Fund |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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