Correlation Between Dow and Solvay SA

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

By analyzing existing cross correlation between Dow Inc and Solvay SA ADR, you can compare the effects of market volatilities on Dow and Solvay SA 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 Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow and Solvay SA.

Diversification Opportunities for Dow and Solvay SA

0.59

Correlation Coefficient

Dow  Solvay SA

Very weak diversification

The 3 months correlation between Dow and Solvay is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Solvay SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA ADR 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 Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA ADR has no effect on the direction of Dow i.e., Dow and Solvay SA go up and down completely randomly.

Pair Corralation between Dow and Solvay SA

Considering the 90-day investment horizon Dow Inc is expected to under-perform the Solvay SA. But the stock apears to be less risky and, when comparing its historical volatility, Dow Inc is 1.52 times less risky than Solvay SA. The stock trades about -0.16 of its potential returns per unit of risk. The Solvay SA ADR is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  348.00  in Solvay SA ADR on August 31, 2024 and sell it today you would lose (15.00) from holding Solvay SA ADR or give up 4.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Dow Inc  vs.  Solvay SA ADR

Dow Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dow Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in December 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Solvay SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solvay SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Solvay SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dow and Solvay SA

The main advantage of trading using opposite Dow and Solvay SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow position performs unexpectedly, Solvay SA 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 Solvay SA will offset losses from the drop in Solvay SA's long position.

The idea behind Dow Inc and Solvay SA ADR 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.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.