Correlation Between Ford and Jentech Precision
Can any of the company-specific risk be diversified away by investing in both Ford and Jentech Precision 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 Jentech Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Jentech Precision Industrial, you can compare the effects of market volatilities on Ford and Jentech Precision 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 Jentech Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Jentech Precision.
Diversification Opportunities for Ford and Jentech Precision
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ford and Jentech is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Jentech Precision Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jentech Precision 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 Jentech Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jentech Precision has no effect on the direction of Ford i.e., Ford and Jentech Precision go up and down completely randomly.
Pair Corralation between Ford and Jentech Precision
Taking into account the 90-day investment horizon Ford is expected to generate 5.59 times less return on investment than Jentech Precision. But when comparing it to its historical volatility, Ford Motor is 1.43 times less risky than Jentech Precision. It trades about 0.03 of its potential returns per unit of risk. Jentech Precision Industrial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 64,000 in Jentech Precision Industrial on September 2, 2024 and sell it today you would earn a total of 74,500 from holding Jentech Precision Industrial or generate 116.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 97.98% |
| Values | Daily Returns |
Ford Motor vs. Jentech Precision Industrial
Performance |
| Timeline |
| Ford Motor |
| Jentech Precision |
Ford and Jentech Precision Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Jentech Precision
The main advantage of trading using opposite Ford and Jentech Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Jentech Precision 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 Jentech Precision will offset losses from the drop in Jentech Precision's long position.The idea behind Ford Motor and Jentech Precision Industrial 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.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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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