Correlation Between Ford and Cult Food
Can any of the company-specific risk be diversified away by investing in both Ford and Cult Food 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 Cult Food into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Cult Food Science, you can compare the effects of market volatilities on Ford and Cult Food 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 Cult Food. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Cult Food.
Diversification Opportunities for Ford and Cult Food
Good diversification
The 3 months correlation between Ford and Cult is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Cult Food Science in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cult Food Science 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 Cult Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cult Food Science has no effect on the direction of Ford i.e., Ford and Cult Food go up and down completely randomly.
Pair Corralation between Ford and Cult Food
Taking into account the 90-day investment horizon Ford is expected to generate 12.93 times less return on investment than Cult Food. But when comparing it to its historical volatility, Ford Motor is 4.54 times less risky than Cult Food. It trades about 0.01 of its potential returns per unit of risk. Cult Food Science is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Cult Food Science on September 2, 2024 and sell it today you would lose (8.46) from holding Cult Food Science or give up 70.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Cult Food Science
Performance |
| Timeline |
| Ford Motor |
| Cult Food Science |
Ford and Cult Food Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Cult Food
The main advantage of trading using opposite Ford and Cult Food positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Cult Food 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 Cult Food will offset losses from the drop in Cult Food's long position.The idea behind Ford Motor and Cult Food Science 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.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
Other Complementary Tools
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Fundamentals Comparison Compare fundamentals across multiple equities to find investing opportunities | |
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |