Correlation Between DOW and Lowes Companies

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

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Can any of the company-specific risk be diversified away by investing in both DOW and Lowes Companies at the same time? Although using correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combing DOW and Lowes Companies into the same portfolio which is an essential part of fundamental portfolio management process.

Diversification Opportunities for DOW and Lowes Companies

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Very poor diversification

The 3 months correlation between DOW and Lowes is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding DOW and Lowes Companies Inc in the same portfolio assuming nothing else is changed. The correlation between historical prices or returns on Lowes Companies 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 are associated (or correlated) with Lowes Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowes Companies has no effect on the direction of DOW i.e. DOW and Lowes Companies go up and down completely randomly.

Pair Corralation between DOW and Lowes Companies

Given the investment horizon of 30 days, DOW is expected to generate 3.43 times less return on investment than Lowes Companies. But when comparing it to its historical volatility, DOW is 2.44 times less risky than Lowes Companies. It trades about 0.07 of its potential returns per unit of risk. Lowes Companies is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  9,422  in Lowes Companies on May 6, 2020 and sell it today you would earn a total of  3,492  from holding Lowes Companies or generate 37.06% return on investment over 30 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

DOW  vs.  Lowes Companies Inc

 Performance (%) 
 Predicted Return Density 
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