Correlation Between Ford and Charles River
Can any of the company-specific risk be diversified away by investing in both Ford and Charles River 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 Charles River into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Charles River Laboratories, you can compare the effects of market volatilities on Ford and Charles River 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 Charles River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Charles River.
Diversification Opportunities for Ford and Charles River
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Charles is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Charles River Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles River Labora 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 Charles River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles River Labora has no effect on the direction of Ford i.e., Ford and Charles River go up and down completely randomly.
Pair Corralation between Ford and Charles River
Taking into account the 90-day investment horizon Ford is expected to generate 1.03 times less return on investment than Charles River. In addition to that, Ford is 1.01 times more volatile than Charles River Laboratories. It trades about 0.01 of its total potential returns per unit of risk. Charles River Laboratories is currently generating about 0.01 per unit of volatility. If you would invest 19,911 in Charles River Laboratories on August 27, 2024 and sell it today you would lose (334.00) from holding Charles River Laboratories or give up 1.68% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Charles River Laboratories
Performance |
| Timeline |
| Ford Motor |
| Charles River Labora |
Ford and Charles River Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Charles River
The main advantage of trading using opposite Ford and Charles River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Charles River 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 Charles River will offset losses from the drop in Charles River's long position.The idea behind Ford Motor and Charles River Laboratories 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.| Charles River vs. ICON PLC | Charles River vs. Mettler Toledo International | Charles River vs. Laboratory of | Charles River vs. Waters |
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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