Correlation Between Ford and AXP Energy
Can any of the company-specific risk be diversified away by investing in both Ford and AXP Energy 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 AXP Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and AXP Energy, you can compare the effects of market volatilities on Ford and AXP Energy 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 AXP Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and AXP Energy.
Diversification Opportunities for Ford and AXP Energy
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and AXP is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and AXP Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXP Energy 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 AXP Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXP Energy has no effect on the direction of Ford i.e., Ford and AXP Energy go up and down completely randomly.
Pair Corralation between Ford and AXP Energy
Taking into account the 90-day investment horizon Ford is expected to generate 50.63 times less return on investment than AXP Energy. But when comparing it to its historical volatility, Ford Motor is 6.89 times less risky than AXP Energy. It trades about 0.04 of its potential returns per unit of risk. AXP Energy is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 0.07 in AXP Energy on August 27, 2024 and sell it today you would earn a total of 0.10 from holding AXP Energy or generate 142.86% 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. AXP Energy
Performance |
| Timeline |
| Ford Motor |
| AXP Energy |
Ford and AXP Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and AXP Energy
The main advantage of trading using opposite Ford and AXP Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, AXP Energy 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 AXP Energy will offset losses from the drop in AXP Energy's long position.The idea behind Ford Motor and AXP Energy 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.| AXP Energy vs. ADX Energy | AXP Energy vs. Calima Energy Limited | AXP Energy vs. Barrister Energy LLC | AXP Energy vs. AER Energy Resources |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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