Correlation Between Ford and Change Financial
Can any of the company-specific risk be diversified away by investing in both Ford and Change 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 Change 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 Change Financial Limited, you can compare the effects of market volatilities on Ford and Change 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 Change Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Change Financial.
Diversification Opportunities for Ford and Change Financial
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Change is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Change Financial Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Change Financial 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 Change Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Change Financial has no effect on the direction of Ford i.e., Ford and Change Financial go up and down completely randomly.
Pair Corralation between Ford and Change Financial
Taking into account the 90-day investment horizon Ford is expected to generate 64.19 times less return on investment than Change Financial. But when comparing it to its historical volatility, Ford Motor is 2.44 times less risky than Change Financial. It trades about 0.0 of its potential returns per unit of risk. Change Financial Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 5.90 in Change Financial Limited on October 13, 2024 and sell it today you would lose (0.30) from holding Change Financial Limited or give up 5.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
Ford Motor vs. Change Financial Limited
Performance |
| Timeline |
| Ford Motor |
| Change Financial |
Ford and Change Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Change Financial
The main advantage of trading using opposite Ford and Change Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Change 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 Change Financial will offset losses from the drop in Change Financial's long position.The idea behind Ford Motor and Change Financial 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.| Change Financial vs. Technology One | Change Financial vs. Ainsworth Game Technology | Change Financial vs. MotorCycle Holdings | Change Financial vs. Dug Technology |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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