Correlation Between Ford and Smith AO
Can any of the company-specific risk be diversified away by investing in both Ford and Smith AO 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 Smith AO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Smith AO, you can compare the effects of market volatilities on Ford and Smith AO 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 Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Smith AO.
Diversification Opportunities for Ford and Smith AO
Very good diversification
The 3 months correlation between Ford and Smith is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO 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 Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Ford i.e., Ford and Smith AO go up and down completely randomly.
Pair Corralation between Ford and Smith AO
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.29 times more return on investment than Smith AO. However, Ford is 1.29 times more volatile than Smith AO. It trades about 0.01 of its potential returns per unit of risk. Smith AO is currently generating about -0.11 per unit of risk. If you would invest 1,104 in Ford Motor on August 30, 2024 and sell it today you would earn a total of 6.00 from holding Ford Motor or generate 0.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Smith AO
Performance |
| Timeline |
| Ford Motor |
| Smith AO |
Ford and Smith AO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Smith AO
The main advantage of trading using opposite Ford and Smith AO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Smith AO 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 Smith AO will offset losses from the drop in Smith AO's long position.The idea behind Ford Motor and Smith AO 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.| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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