Correlation Between Ford and Associated British
Can any of the company-specific risk be diversified away by investing in both Ford and Associated British 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 Associated British into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Associated British Foods, you can compare the effects of market volatilities on Ford and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Associated British.
Diversification Opportunities for Ford and Associated British
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Associated is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Ford i.e., Ford and Associated British go up and down completely randomly.
Pair Corralation between Ford and Associated British
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.64 times more return on investment than Associated British. However, Ford is 1.64 times more volatile than Associated British Foods. It trades about 0.18 of its potential returns per unit of risk. Associated British Foods is currently generating about -0.08 per unit of risk. If you would invest 1,022 in Ford Motor on September 4, 2024 and sell it today you would earn a total of 76.00 from holding Ford Motor or generate 7.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. Associated British Foods
Performance |
| Timeline |
| Ford Motor |
| Associated British Foods |
Ford and Associated British Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Associated British
The main advantage of trading using opposite Ford and Associated British positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Associated British 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 Associated British will offset losses from the drop in Associated British's long position.The idea behind Ford Motor and Associated British Foods 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.| Associated British vs. Cogent Communications Holdings | Associated British vs. Shenandoah Telecommunications | Associated British vs. Charter Communications | Associated British vs. Zoom Video Communications |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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