Correlation Between Dow and Tscan Therapeutics

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

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

Diversification Opportunities for Dow and Tscan Therapeutics

0.44

Correlation Coefficient

Dow  Tscan Therapeutics

Very weak diversification

The 3 months correlation between Dow and Tscan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Tscan Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tscan Therapeutics 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 Tscan Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tscan Therapeutics has no effect on the direction of Dow i.e., Dow and Tscan Therapeutics go up and down completely randomly.

Pair Corralation between Dow and Tscan Therapeutics

Considering the 90-day investment horizon Dow is expected to generate 10.92 times less return on investment than Tscan Therapeutics. But when comparing it to its historical volatility, Dow Inc is 4.52 times less risky than Tscan Therapeutics. It trades about 0.06 of its potential returns per unit of risk. Tscan Therapeutics is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  676.00  in Tscan Therapeutics on February 23, 2024 and sell it today you would earn a total of  275.00  from holding Tscan Therapeutics or generate 40.68% return on investment over 90 days.

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

Dow Inc  vs.  Tscan Therapeutics

Dow Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Dow is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Tscan Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tscan Therapeutics are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Tscan Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dow and Tscan Therapeutics

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

The idea behind Dow Inc and Tscan Therapeutics 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.