Correlation Between Ford and Chevron
Can any of the company-specific risk be diversified away by investing in both Ford and Chevron 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 Chevron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Chevron, you can compare the effects of market volatilities on Ford and Chevron 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 Chevron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Chevron.
Diversification Opportunities for Ford and Chevron
Average diversification
The 3 months correlation between Ford and Chevron is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Chevron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron 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 Chevron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron has no effect on the direction of Ford i.e., Ford and Chevron go up and down completely randomly.
Pair Corralation between Ford and Chevron
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.0 times more return on investment than Chevron. However, Ford Motor is 1.0 times less risky than Chevron. It trades about 0.06 of its potential returns per unit of risk. Chevron is currently generating about -0.08 per unit of risk. If you would invest 992.00 in Ford Motor on November 5, 2024 and sell it today you would earn a total of 16.00 from holding Ford Motor or generate 1.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.48% |
| Values | Daily Returns |
Ford Motor vs. Chevron
Performance |
| Timeline |
| Ford Motor |
| Chevron |
Ford and Chevron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Chevron
The main advantage of trading using opposite Ford and Chevron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Chevron 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 Chevron will offset losses from the drop in Chevron's long position.The idea behind Ford Motor and Chevron 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.| Chevron vs. Jefferies Financial Group | Chevron vs. Broadridge Financial Solutions, | Chevron vs. SVB Financial Group | Chevron vs. Datadog, |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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