Correlation Between Ford and BZAM
Can any of the company-specific risk be diversified away by investing in both Ford and BZAM 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 BZAM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BZAM, you can compare the effects of market volatilities on Ford and BZAM 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 BZAM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BZAM.
Diversification Opportunities for Ford and BZAM
Very good diversification
The 3 months correlation between Ford and BZAM is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BZAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BZAM 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 BZAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BZAM has no effect on the direction of Ford i.e., Ford and BZAM go up and down completely randomly.
Pair Corralation between Ford and BZAM
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.09 times more return on investment than BZAM. However, Ford Motor is 11.22 times less risky than BZAM. It trades about 0.23 of its potential returns per unit of risk. BZAM is currently generating about -0.22 per unit of risk. If you would invest 1,015 in Ford Motor on September 1, 2024 and sell it today you would earn a total of 98.00 from holding Ford Motor or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Ford Motor vs. BZAM
Performance |
| Timeline |
| Ford Motor |
| BZAM |
Ford and BZAM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BZAM
The main advantage of trading using opposite Ford and BZAM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BZAM 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 BZAM will offset losses from the drop in BZAM's long position.The idea behind Ford Motor and BZAM 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.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
Other Complementary Tools
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Headlines Timeline Stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity | |
| Bond Analysis Evaluate and analyze corporate bonds as a potential investment for your portfolios. | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets |