Correlation Between Ford and ALS
Can any of the company-specific risk be diversified away by investing in both Ford and ALS 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 ALS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and ALS, you can compare the effects of market volatilities on Ford and ALS 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 ALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and ALS.
Diversification Opportunities for Ford and ALS
Weak diversification
The 3 months correlation between Ford and ALS is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALS 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 ALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALS has no effect on the direction of Ford i.e., Ford and ALS go up and down completely randomly.
Pair Corralation between Ford and ALS
Taking into account the 90-day investment horizon Ford is expected to generate 4.98 times less return on investment than ALS. In addition to that, Ford is 1.47 times more volatile than ALS. It trades about 0.01 of its total potential returns per unit of risk. ALS is currently generating about 0.06 per unit of volatility. If you would invest 1,268 in ALS on August 25, 2024 and sell it today you would earn a total of 282.00 from holding ALS or generate 22.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.13% |
| Values | Daily Returns |
Ford Motor vs. ALS
Performance |
| Timeline |
| Ford Motor |
| ALS |
Ford and ALS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and ALS
The main advantage of trading using opposite Ford and ALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, ALS 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 ALS will offset losses from the drop in ALS's long position.The idea behind Ford Motor and ALS 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.| ALS vs. Diversified United Investment | ALS vs. EMvision Medical Devices | ALS vs. Platinum Asia Investments | ALS vs. Sandon Capital Investments |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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