Correlation Between Ford and LegoChem Biosciences
Can any of the company-specific risk be diversified away by investing in both Ford and LegoChem Biosciences 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 LegoChem Biosciences into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and LegoChem Biosciences, you can compare the effects of market volatilities on Ford and LegoChem Biosciences 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 LegoChem Biosciences. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and LegoChem Biosciences.
Diversification Opportunities for Ford and LegoChem Biosciences
0.07 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and LegoChem is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LegoChem Biosciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LegoChem Biosciences 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 LegoChem Biosciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LegoChem Biosciences has no effect on the direction of Ford i.e., Ford and LegoChem Biosciences go up and down completely randomly.
Pair Corralation between Ford and LegoChem Biosciences
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.42 times more return on investment than LegoChem Biosciences. However, Ford Motor is 2.39 times less risky than LegoChem Biosciences. It trades about 0.23 of its potential returns per unit of risk. LegoChem Biosciences is currently generating about -0.25 per unit of risk. If you would invest 1,015 in Ford Motor on September 1, 2024 and sell it today you would earn a total of 98.00 from holding Ford Motor or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 91.3% |
| Values | Daily Returns |
Ford Motor vs. LegoChem Biosciences
Performance |
| Timeline |
| Ford Motor |
| LegoChem Biosciences |
Ford and LegoChem Biosciences Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and LegoChem Biosciences
The main advantage of trading using opposite Ford and LegoChem Biosciences positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, LegoChem Biosciences 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 LegoChem Biosciences will offset losses from the drop in LegoChem Biosciences' long position.The idea behind Ford Motor and LegoChem Biosciences 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.| LegoChem Biosciences vs. Home Center Holdings | LegoChem Biosciences vs. Woori Technology | LegoChem Biosciences vs. Daechang Steel Co | LegoChem Biosciences vs. BGF Retail Co |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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