Correlation Between Ford and Small Cap
Can any of the company-specific risk be diversified away by investing in both Ford and Small Cap 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 Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Small Cap Growth, you can compare the effects of market volatilities on Ford and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Small Cap.
Diversification Opportunities for Ford and Small Cap
Very weak diversification
The 3 months correlation between Ford and Small is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Small Cap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Growth 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Growth has no effect on the direction of Ford i.e., Ford and Small Cap go up and down completely randomly.
Pair Corralation between Ford and Small Cap
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.93 times more return on investment than Small Cap. However, Ford is 1.93 times more volatile than Small Cap Growth. It trades about 0.1 of its potential returns per unit of risk. Small Cap Growth is currently generating about 0.17 per unit of risk. If you would invest 1,028 in Ford Motor on August 26, 2024 and sell it today you would earn a total of 90.00 from holding Ford Motor or generate 8.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Small Cap Growth
Performance |
| Timeline |
| Ford Motor |
| Small Cap Growth |
Ford and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Small Cap
The main advantage of trading using opposite Ford and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.The idea behind Ford Motor and Small Cap Growth 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.| Small Cap vs. Small Cap Growth | Small Cap vs. Small Cap Growth | Small Cap vs. Baron International Growth |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
Other Complementary Tools
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins |