Correlation Between Ford and CEA Industries
Can any of the company-specific risk be diversified away by investing in both Ford and CEA Industries 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 CEA Industries into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and CEA Industries, you can compare the effects of market volatilities on Ford and CEA Industries 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 CEA Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and CEA Industries.
Diversification Opportunities for Ford and CEA Industries
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Ford and CEA is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CEA Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEA Industries 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 CEA Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEA Industries has no effect on the direction of Ford i.e., Ford and CEA Industries go up and down completely randomly.
Pair Corralation between Ford and CEA Industries
Taking into account the 90-day investment horizon Ford is expected to generate 10.38 times less return on investment than CEA Industries. But when comparing it to its historical volatility, Ford Motor is 2.29 times less risky than CEA Industries. It trades about 0.02 of its potential returns per unit of risk. CEA Industries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 680.00 in CEA Industries on November 1, 2024 and sell it today you would earn a total of 96.00 from holding CEA Industries or generate 14.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. CEA Industries
Performance |
| Timeline |
| Ford Motor |
| CEA Industries |
Ford and CEA Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and CEA Industries
The main advantage of trading using opposite Ford and CEA Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, CEA Industries 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 CEA Industries will offset losses from the drop in CEA Industries' long position.The idea behind Ford Motor and CEA Industries 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.| CEA Industries vs. Rev Group | CEA Industries vs. Caterpillar | CEA Industries vs. Buhler Industries | CEA Industries vs. Austin Engineering Limited |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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