Correlation Between Ford and Sierra Bancorp
Can any of the company-specific risk be diversified away by investing in both Ford and Sierra Bancorp 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 Sierra Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Sierra Bancorp, you can compare the effects of market volatilities on Ford and Sierra Bancorp 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 Sierra Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Sierra Bancorp.
Diversification Opportunities for Ford and Sierra Bancorp
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Sierra is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sierra Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Bancorp 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 Sierra Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Bancorp has no effect on the direction of Ford i.e., Ford and Sierra Bancorp go up and down completely randomly.
Pair Corralation between Ford and Sierra Bancorp
Taking into account the 90-day investment horizon Ford is expected to generate 1.55 times less return on investment than Sierra Bancorp. But when comparing it to its historical volatility, Ford Motor is 2.33 times less risky than Sierra Bancorp. It trades about 0.17 of its potential returns per unit of risk. Sierra Bancorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,870 in Sierra Bancorp on August 31, 2024 and sell it today you would earn a total of 291.00 from holding Sierra Bancorp or generate 10.14% 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. Sierra Bancorp
Performance |
| Timeline |
| Ford Motor |
| Sierra Bancorp |
Ford and Sierra Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Sierra Bancorp
The main advantage of trading using opposite Ford and Sierra Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Sierra Bancorp 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 Sierra Bancorp will offset losses from the drop in Sierra Bancorp's long position.The idea behind Ford Motor and Sierra Bancorp 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.| Sierra Bancorp vs. Home Federal Bancorp | Sierra Bancorp vs. First Financial Northwest | Sierra Bancorp vs. First Northwest Bancorp | Sierra Bancorp vs. First Capital |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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