Correlation Between Ford and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Ford and Bread Financial 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 Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Bread Financial Holdings, you can compare the effects of market volatilities on Ford and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Bread Financial.
Diversification Opportunities for Ford and Bread Financial
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Bread is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Ford i.e., Ford and Bread Financial go up and down completely randomly.
Pair Corralation between Ford and Bread Financial
Taking into account the 90-day investment horizon Ford is expected to generate 5.29 times less return on investment than Bread Financial. But when comparing it to its historical volatility, Ford Motor is 1.31 times less risky than Bread Financial. It trades about 0.01 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,660 in Bread Financial Holdings on August 27, 2024 and sell it today you would earn a total of 2,147 from holding Bread Financial Holdings or generate 58.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Bread Financial Holdings
Performance |
| Timeline |
| Ford Motor |
| Bread Financial Holdings |
Ford and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Bread Financial
The main advantage of trading using opposite Ford and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.The idea behind Ford Motor and Bread Financial Holdings 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.| Bread Financial vs. SLM Corp | Bread Financial vs. Orix Corp Ads | Bread Financial vs. FirstCash | Bread Financial vs. Medallion Financial Corp |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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