Correlation Between Dividend and Dividend Growth

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

By analyzing existing cross correlation between Dividend 15 Split and Dividend Growth Split, you can compare the effects of market volatilities on Dividend and Dividend Growth 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 Dividend with a short position of Dividend Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dividend and Dividend Growth.

Diversification Opportunities for Dividend and Dividend Growth

0.88

Correlation Coefficient

Dividend  Dividend Growth

Very poor diversification

The 3 months correlation between Dividend and Dividend is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Dividend 15 Split and Dividend Growth Split in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dividend Growth Split and Dividend 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 Dividend 15 Split are associated (or correlated) with Dividend Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dividend Growth Split has no effect on the direction of Dividend i.e., Dividend and Dividend Growth go up and down completely randomly.

Pair Corralation between Dividend and Dividend Growth

Assuming the 90 days horizon Dividend 15 Split is expected to under-perform the Dividend Growth. In addition to that, Dividend is 1.21 times more volatile than Dividend Growth Split. It trades about -0.06 of its total potential returns per unit of risk. Dividend Growth Split is currently generating about -0.04 per unit of volatility. If you would invest  667.00  in Dividend Growth Split on December 31, 2024 and sell it today you would lose (31.00) from holding Dividend Growth Split or give up 4.65% of portfolio value over 90 days.

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

Dividend 15 Split  vs.  Dividend Growth Split

Dividend 15 Split

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dividend 15 Split has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Dividend Growth Split

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dividend Growth Split has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dividend Growth is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Dividend and Dividend Growth

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

The idea behind Dividend 15 Split and Dividend Growth Split 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.