Correlation Between Ford and Freeport McMoRan
Can any of the company-specific risk be diversified away by investing in both Ford and Freeport McMoRan 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 Ford and Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Freeport McMoRan, you can compare the effects of market volatilities on Ford and Freeport McMoRan 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 Ford with a short position of Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Freeport McMoRan.
Diversification Opportunities for Ford and Freeport McMoRan
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and Freeport is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and Ford 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 Ford Motor are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Ford i.e., Ford and Freeport McMoRan go up and down completely randomly.
Pair Corralation between Ford and Freeport McMoRan
Taking into account the 90-day investment horizon Ford is expected to generate 1.17 times less return on investment than Freeport McMoRan. But when comparing it to its historical volatility, Ford Motor is 1.02 times less risky than Freeport McMoRan. It trades about 0.01 of its potential returns per unit of risk. Freeport McMoRan is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 3,823 in Freeport McMoRan on September 23, 2024 and sell it today you would earn a total of 75.00 from holding Freeport McMoRan or generate 1.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.2% |
| Values | Daily Returns |
Ford Motor vs. Freeport McMoRan
Performance |
| Timeline |
| Ford Motor |
| Freeport McMoRan |
Ford and Freeport McMoRan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Freeport McMoRan
The main advantage of trading using opposite Ford and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.The idea behind Ford Motor and Freeport McMoRan 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.| Freeport McMoRan vs. Uniper SE | Freeport McMoRan vs. Mulberry Group PLC | Freeport McMoRan vs. London Security Plc | Freeport McMoRan vs. Triad Group PLC |
Check out your portfolio center.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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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