Correlation Between Ford and Alternative Energy
Can any of the company-specific risk be diversified away by investing in both Ford and Alternative Energy 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 Alternative Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Alternative Energy, you can compare the effects of market volatilities on Ford and Alternative Energy 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 Alternative Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Alternative Energy.
Diversification Opportunities for Ford and Alternative Energy
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Alternative is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Alternative Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alternative Energy 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 Alternative Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alternative Energy has no effect on the direction of Ford i.e., Ford and Alternative Energy go up and down completely randomly.
Pair Corralation between Ford and Alternative Energy
If you would invest 0.01 in Alternative Energy on August 24, 2024 and sell it today you would earn a total of 0.00 from holding Alternative Energy or generate 0.0% 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. Alternative Energy
Performance |
| Timeline |
| Ford Motor |
| Alternative Energy |
Ford and Alternative Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Alternative Energy
The main advantage of trading using opposite Ford and Alternative Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Alternative Energy 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 Alternative Energy will offset losses from the drop in Alternative Energy's long position.The idea behind Ford Motor and Alternative Energy 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.| Alternative Energy vs. Alibaba Health Information | Alternative Energy vs. Allstar Health Brands | Alternative Energy vs. Walgreens Boots Alliance | Alternative Energy vs. Alibaba Health Information |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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