Correlation Between Ford and BW LPG
Can any of the company-specific risk be diversified away by investing in both Ford and BW LPG 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 BW LPG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BW LPG Limited, you can compare the effects of market volatilities on Ford and BW LPG 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 BW LPG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BW LPG.
Diversification Opportunities for Ford and BW LPG
Very good diversification
The 3 months correlation between Ford and BWLP is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BW LPG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BW LPG Limited 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 BW LPG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BW LPG Limited has no effect on the direction of Ford i.e., Ford and BW LPG go up and down completely randomly.
Pair Corralation between Ford and BW LPG
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the BW LPG. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.4 times less risky than BW LPG. The stock trades about 0.0 of its potential returns per unit of risk. The BW LPG Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 710.00 in BW LPG Limited on August 31, 2024 and sell it today you would earn a total of 517.00 from holding BW LPG Limited or generate 72.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. BW LPG Limited
Performance |
| Timeline |
| Ford Motor |
| BW LPG Limited |
Ford and BW LPG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BW LPG
The main advantage of trading using opposite Ford and BW LPG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BW LPG 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 BW LPG will offset losses from the drop in BW LPG's long position.The idea behind Ford Motor and BW LPG Limited 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.| BW LPG vs. Celsius Holdings | BW LPG vs. PepsiCo | BW LPG vs. Xponential Fitness | BW LPG vs. Northstar Clean Technologies |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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