Correlation Between Ford and CSL
Can any of the company-specific risk be diversified away by investing in both Ford and CSL 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 CSL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and CSL, you can compare the effects of market volatilities on Ford and CSL 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 CSL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and CSL.
Diversification Opportunities for Ford and CSL
Very weak diversification
The 3 months correlation between Ford and CSL is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and CSL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL 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 CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL has no effect on the direction of Ford i.e., Ford and CSL go up and down completely randomly.
Pair Corralation between Ford and CSL
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the CSL. In addition to that, Ford is 1.94 times more volatile than CSL. It trades about -0.02 of its total potential returns per unit of risk. CSL is currently generating about -0.04 per unit of volatility. If you would invest 9,699 in CSL on November 4, 2024 and sell it today you would lose (1,064) from holding CSL or give up 10.97% 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. CSL
Performance |
| Timeline |
| Ford Motor |
| CSL |
Ford and CSL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and CSL
The main advantage of trading using opposite Ford and CSL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, CSL 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 CSL will offset losses from the drop in CSL's long position.The idea behind Ford Motor and CSL 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.| CSL vs. Novo Nordisk AS | CSL vs. ACELYRIN, INC Common | CSL vs. Caribou Biosciences | CSL vs. Molecular Partners AG |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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