Correlation Between Ford and American Resources
Can any of the company-specific risk be diversified away by investing in both Ford and American Resources 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 Resources 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 Resources Corp, you can compare the effects of market volatilities on Ford and American Resources 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 Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and American Resources.
Diversification Opportunities for Ford and American Resources
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and American is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Resources Corp 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 Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Resources Corp has no effect on the direction of Ford i.e., Ford and American Resources go up and down completely randomly.
Pair Corralation between Ford and American Resources
Taking into account the 90-day investment horizon Ford is expected to generate 6.87 times less return on investment than American Resources. But when comparing it to its historical volatility, Ford Motor is 2.84 times less risky than American Resources. It trades about 0.07 of its potential returns per unit of risk. American Resources Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 83.00 in American Resources Corp on August 27, 2024 and sell it today you would earn a total of 40.00 from holding American Resources Corp or generate 48.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. American Resources Corp
Performance |
| Timeline |
| Ford Motor |
| American Resources Corp |
Ford and American Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and American Resources
The main advantage of trading using opposite Ford and American Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, American Resources 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 Resources will offset losses from the drop in American Resources' long position.The idea behind Ford Motor and American Resources Corp 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 Resources vs. Westwater Resources | American Resources vs. Aqua Metals | American Resources vs. Pioneer Power Solutions | American Resources vs. Hall of Fame |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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