Correlation Between Ford and Doman Building
Can any of the company-specific risk be diversified away by investing in both Ford and Doman Building 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 Doman Building into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Doman Building Materials, you can compare the effects of market volatilities on Ford and Doman Building 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 Doman Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Doman Building.
Diversification Opportunities for Ford and Doman Building
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ford and Doman is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Doman Building Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Doman Building Materials 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 Doman Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Doman Building Materials has no effect on the direction of Ford i.e., Ford and Doman Building go up and down completely randomly.
Pair Corralation between Ford and Doman Building
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Doman Building. In addition to that, Ford is 1.16 times more volatile than Doman Building Materials. It trades about -0.21 of its total potential returns per unit of risk. Doman Building Materials is currently generating about 0.09 per unit of volatility. If you would invest 654.00 in Doman Building Materials on September 12, 2024 and sell it today you would earn a total of 16.00 from holding Doman Building Materials or generate 2.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Doman Building Materials
Performance |
| Timeline |
| Ford Motor |
| Doman Building Materials |
Ford and Doman Building Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Doman Building
The main advantage of trading using opposite Ford and Doman Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Doman Building 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 Doman Building will offset losses from the drop in Doman Building's long position.The idea behind Ford Motor and Doman Building Materials 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.| Doman Building vs. Finning International | Doman Building vs. Toromont Industries | Doman Building vs. Aecon Group | Doman Building vs. BTB Real Estate |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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