Correlation Between Ford and BEC World
Can any of the company-specific risk be diversified away by investing in both Ford and BEC World 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 BEC World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BEC World Public, you can compare the effects of market volatilities on Ford and BEC World 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 BEC World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BEC World.
Diversification Opportunities for Ford and BEC World
Good diversification
The 3 months correlation between Ford and BEC is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BEC World Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BEC World Public 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 BEC World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BEC World Public has no effect on the direction of Ford i.e., Ford and BEC World go up and down completely randomly.
Pair Corralation between Ford and BEC World
Taking into account the 90-day investment horizon Ford is expected to generate 225.02 times less return on investment than BEC World. But when comparing it to its historical volatility, Ford Motor is 35.65 times less risky than BEC World. It trades about 0.01 of its potential returns per unit of risk. BEC World Public is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 447.00 in BEC World Public on August 28, 2024 and sell it today you would lose (55.00) from holding BEC World Public or give up 12.3% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 97.62% |
| Values | Daily Returns |
Ford Motor vs. BEC World Public
Performance |
| Timeline |
| Ford Motor |
| BEC World Public |
Ford and BEC World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BEC World
The main advantage of trading using opposite Ford and BEC World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BEC World 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 BEC World will offset losses from the drop in BEC World's long position.The idea behind Ford Motor and BEC World Public 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.| BEC World vs. Indara Insurance Public | BEC World vs. Regional Container Lines | BEC World vs. Regional Container Lines | BEC World vs. Mahachai Hospital Public |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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