Correlation Between Ford and Challenger
Can any of the company-specific risk be diversified away by investing in both Ford and Challenger 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 Challenger into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Challenger, you can compare the effects of market volatilities on Ford and Challenger 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 Challenger. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Challenger.
Diversification Opportunities for Ford and Challenger
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Challenger is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Challenger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Challenger 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 Challenger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Challenger has no effect on the direction of Ford i.e., Ford and Challenger go up and down completely randomly.
Pair Corralation between Ford and Challenger
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Challenger. In addition to that, Ford is 1.35 times more volatile than Challenger. It trades about 0.0 of its total potential returns per unit of risk. Challenger is currently generating about 0.02 per unit of volatility. If you would invest 573.00 in Challenger on September 1, 2024 and sell it today you would earn a total of 49.00 from holding Challenger or generate 8.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.67% |
| Values | Daily Returns |
Ford Motor vs. Challenger
Performance |
| Timeline |
| Ford Motor |
| Challenger |
Ford and Challenger Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Challenger
The main advantage of trading using opposite Ford and Challenger positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Challenger 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 Challenger will offset losses from the drop in Challenger's long position.The idea behind Ford Motor and Challenger 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.| Challenger vs. Group 6 Metals | Challenger vs. Land Homes Group | Challenger vs. Sandon Capital Investments | Challenger vs. Clime Investment Management |
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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