Correlation Between Ford and Arjo AB
Can any of the company-specific risk be diversified away by investing in both Ford and Arjo AB 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 Arjo AB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Arjo AB, you can compare the effects of market volatilities on Ford and Arjo AB 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 Arjo AB. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Arjo AB.
Diversification Opportunities for Ford and Arjo AB
Very good diversification
The 3 months correlation between Ford and Arjo is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Arjo AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arjo AB 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 Arjo AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arjo AB has no effect on the direction of Ford i.e., Ford and Arjo AB go up and down completely randomly.
Pair Corralation between Ford and Arjo AB
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.16 times more return on investment than Arjo AB. However, Ford is 1.16 times more volatile than Arjo AB. It trades about 0.03 of its potential returns per unit of risk. Arjo AB is currently generating about 0.0 per unit of risk. If you would invest 1,011 in Ford Motor on September 2, 2024 and sell it today you would earn a total of 102.00 from holding Ford Motor or generate 10.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Ford Motor vs. Arjo AB
Performance |
| Timeline |
| Ford Motor |
| Arjo AB |
Ford and Arjo AB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Arjo AB
The main advantage of trading using opposite Ford and Arjo AB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Arjo AB 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 Arjo AB will offset losses from the drop in Arjo AB's long position.The idea behind Ford Motor and Arjo AB 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.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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