Correlation Between Ford and Cool Company
Can any of the company-specific risk be diversified away by investing in both Ford and Cool Company 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 Cool Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Cool Company Oy, you can compare the effects of market volatilities on Ford and Cool Company 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 Cool Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Cool Company.
Diversification Opportunities for Ford and Cool Company
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Cool is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cool Company Oy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cool Company Oy 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 Cool Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cool Company Oy has no effect on the direction of Ford i.e., Ford and Cool Company go up and down completely randomly.
Pair Corralation between Ford and Cool Company
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.55 times more return on investment than Cool Company. However, Ford Motor is 1.82 times less risky than Cool Company. It trades about 0.18 of its potential returns per unit of risk. Cool Company Oy is currently generating about -0.16 per unit of risk. If you would invest 1,033 in Ford Motor on August 31, 2024 and sell it today you would earn a total of 80.00 from holding Ford Motor or generate 7.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Cool Company Oy
Performance |
| Timeline |
| Ford Motor |
| Cool Company Oy |
Ford and Cool Company Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Cool Company
The main advantage of trading using opposite Ford and Cool Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Cool Company 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 Cool Company will offset losses from the drop in Cool Company's long position.The idea behind Ford Motor and Cool Company Oy 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.| Cool Company vs. Aasen Sparebank | Cool Company vs. Morrow Bank ASA | Cool Company vs. BW Offshore | Cool Company vs. Sunndal Sparebank |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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