Correlation Between Ford and Small Company
Can any of the company-specific risk be diversified away by investing in both Ford and Small Company 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 Company 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 Pany Fund, you can compare the effects of market volatilities on Ford and Small Company 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 Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Small Company.
Diversification Opportunities for Ford and Small Company
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ford and Small is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Small Pany Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Pany Fund 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 Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Pany Fund has no effect on the direction of Ford i.e., Ford and Small Company go up and down completely randomly.
Pair Corralation between Ford and Small Company
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Small Company. In addition to that, Ford is 1.85 times more volatile than Small Pany Fund. It trades about 0.0 of its total potential returns per unit of risk. Small Pany Fund is currently generating about 0.04 per unit of volatility. If you would invest 1,405 in Small Pany Fund on November 2, 2024 and sell it today you would earn a total of 272.00 from holding Small Pany Fund or generate 19.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Small Pany Fund
Performance |
| Timeline |
| Ford Motor |
| Small Pany Fund |
Ford and Small Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Small Company
The main advantage of trading using opposite Ford and Small Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Small Company 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 Company will offset losses from the drop in Small Company's long position.The idea behind Ford Motor and Small Pany Fund 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 Company vs. Small Cap Value | Small Company vs. Real Estate Fund | Small Company vs. Emerging Markets Fund | Small Company vs. Equity Growth Fund |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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