Correlation Between Dow and Infosys

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

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

Diversification Opportunities for Dow and Infosys

0.36

Correlation Coefficient

Dow  Infosys

Weak diversification

The 3 months correlation between Dow and Infosys is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dow Inc and Infosys Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infosys Ltd 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 Infosys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infosys Ltd ADR has no effect on the direction of Dow i.e., Dow and Infosys go up and down completely randomly.

Pair Corralation between Dow and Infosys

Considering the 90-day investment horizon Dow Inc is expected to under-perform the Infosys. In addition to that, Dow is 1.12 times more volatile than Infosys Ltd ADR. It trades about -0.16 of its total potential returns per unit of risk. Infosys Ltd ADR is currently generating about 0.01 per unit of volatility. If you would invest  2,272  in Infosys Ltd ADR on August 31, 2024 and sell it today you would earn a total of  2.00  from holding Infosys Ltd ADR or generate 0.09% return on investment over 90 days.

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

Dow Inc  vs.  Infosys Ltd 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.

Infosys Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dow and Infosys

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

The idea behind Dow Inc and Infosys Ltd 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.