Correlation Between Ford and Albemarle
Can any of the company-specific risk be diversified away by investing in both Ford and Albemarle 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 Albemarle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Albemarle, you can compare the effects of market volatilities on Ford and Albemarle 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 Albemarle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Albemarle.
Diversification Opportunities for Ford and Albemarle
Weak diversification
The 3 months correlation between Ford and Albemarle is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Albemarle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Albemarle 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 Albemarle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Albemarle has no effect on the direction of Ford i.e., Ford and Albemarle go up and down completely randomly.
Pair Corralation between Ford and Albemarle
Taking into account the 90-day investment horizon Ford is expected to generate 1.82 times less return on investment than Albemarle. But when comparing it to its historical volatility, Ford Motor is 2.24 times less risky than Albemarle. It trades about 0.18 of its potential returns per unit of risk. Albemarle is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 9,038 in Albemarle on August 30, 2024 and sell it today you would earn a total of 1,238 from holding Albemarle or generate 13.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Albemarle
Performance |
| Timeline |
| Ford Motor |
| Albemarle |
Ford and Albemarle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Albemarle
The main advantage of trading using opposite Ford and Albemarle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Albemarle 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 Albemarle will offset losses from the drop in Albemarle's long position.The idea behind Ford Motor and Albemarle 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.| Albemarle vs. Sumitomo Mitsui Construction | Albemarle vs. Xinhua Winshare Publishing | Albemarle vs. Australian Agricultural | Albemarle vs. HYDROFARM HLD GRP |
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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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