Correlation Between Ford and Bridge Builder
Can any of the company-specific risk be diversified away by investing in both Ford and Bridge Builder 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 Bridge Builder into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Bridge Builder Large, you can compare the effects of market volatilities on Ford and Bridge Builder 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 Bridge Builder. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Bridge Builder.
Diversification Opportunities for Ford and Bridge Builder
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Bridge is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Bridge Builder Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bridge Builder Large 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 Bridge Builder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bridge Builder Large has no effect on the direction of Ford i.e., Ford and Bridge Builder go up and down completely randomly.
Pair Corralation between Ford and Bridge Builder
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Bridge Builder. In addition to that, Ford is 3.89 times more volatile than Bridge Builder Large. It trades about 0.0 of its total potential returns per unit of risk. Bridge Builder Large is currently generating about 0.23 per unit of volatility. If you would invest 1,863 in Bridge Builder Large on August 29, 2024 and sell it today you would earn a total of 67.00 from holding Bridge Builder Large or generate 3.6% 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. Bridge Builder Large
Performance |
| Timeline |
| Ford Motor |
| Bridge Builder Large |
Ford and Bridge Builder Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Bridge Builder
The main advantage of trading using opposite Ford and Bridge Builder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Bridge Builder 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 Bridge Builder will offset losses from the drop in Bridge Builder's long position.The idea behind Ford Motor and Bridge Builder Large 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.| Bridge Builder vs. Fidelity Advisor Financial | Bridge Builder vs. Royce Global Financial | Bridge Builder vs. Pimco Capital Sec | Bridge Builder vs. Prudential Jennison Financial |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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