Correlation Between Ford and AB Science
Can any of the company-specific risk be diversified away by investing in both Ford and AB Science 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 AB Science into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and AB Science SA, you can compare the effects of market volatilities on Ford and AB Science 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 AB Science. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and AB Science.
Diversification Opportunities for Ford and AB Science
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and AB Science is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and AB Science SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB Science SA 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 AB Science. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB Science SA has no effect on the direction of Ford i.e., Ford and AB Science go up and down completely randomly.
Pair Corralation between Ford and AB Science
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.24 times more return on investment than AB Science. However, Ford is 1.24 times more volatile than AB Science SA. It trades about 0.04 of its potential returns per unit of risk. AB Science SA is currently generating about -0.41 per unit of risk. If you would invest 1,122 in Ford Motor on August 27, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. AB Science SA
Performance |
| Timeline |
| Ford Motor |
| AB Science SA |
Ford and AB Science Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and AB Science
The main advantage of trading using opposite Ford and AB Science positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, AB Science 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 AB Science will offset losses from the drop in AB Science's long position.The idea behind Ford Motor and AB Science SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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