Correlation Between Ford and American Cannabis
Can any of the company-specific risk be diversified away by investing in both Ford and American Cannabis 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 American Cannabis into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and American Cannabis, you can compare the effects of market volatilities on Ford and American Cannabis 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 American Cannabis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and American Cannabis.
Diversification Opportunities for Ford and American Cannabis
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and American is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Cannabis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Cannabis 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 American Cannabis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Cannabis has no effect on the direction of Ford i.e., Ford and American Cannabis go up and down completely randomly.
Pair Corralation between Ford and American Cannabis
Taking into account the 90-day investment horizon Ford is expected to generate 51.21 times less return on investment than American Cannabis. But when comparing it to its historical volatility, Ford Motor is 10.87 times less risky than American Cannabis. It trades about 0.01 of its potential returns per unit of risk. American Cannabis is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 3.90 in American Cannabis on August 29, 2024 and sell it today you would lose (3.86) from holding American Cannabis or give up 98.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. American Cannabis
Performance |
| Timeline |
| Ford Motor |
| American Cannabis |
Ford and American Cannabis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and American Cannabis
The main advantage of trading using opposite Ford and American Cannabis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, American Cannabis 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 American Cannabis will offset losses from the drop in American Cannabis' long position.The idea behind Ford Motor and American Cannabis 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.| American Cannabis vs. AimRite Holdings Corp | American Cannabis vs. Sack Lunch Productions | American Cannabis vs. American Diversified Holdings | American Cannabis vs. Booz Allen Hamilton |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
Other Complementary Tools
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Price Ceiling Movement Calculate and plot Price Ceiling Movement for different equity instruments | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios |