Correlation Between Dow and Valhi

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

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

Diversification Opportunities for Dow and Valhi

0.75

Correlation Coefficient

Dow  Valhi

Poor diversification

The 3 months correlation between Dow and Valhi is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Dow i.e., Dow and Valhi go up and down completely randomly.

Pair Corralation between Dow and Valhi

Considering the 90-day investment horizon Dow is expected to generate 2.57 times less return on investment than Valhi. But when comparing it to its historical volatility, Dow Inc is 2.7 times less risky than Valhi. It trades about 0.2 of its potential returns per unit of risk. Valhi Inc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,504  in Valhi Inc on February 13, 2024 and sell it today you would earn a total of  136.00  from holding Valhi Inc or generate 9.04% return on investment over 90 days.

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

Dow Inc  vs.  Valhi Inc

Dow Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Dow may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Valhi Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valhi Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Valhi demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dow and Valhi

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

The idea behind Dow Inc and Valhi Inc 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.