Correlation Between Ford and Deckers Outdoor
Can any of the company-specific risk be diversified away by investing in both Ford and Deckers Outdoor 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 Deckers Outdoor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Deckers Outdoor, you can compare the effects of market volatilities on Ford and Deckers Outdoor 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 Deckers Outdoor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Deckers Outdoor.
Diversification Opportunities for Ford and Deckers Outdoor
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Deckers is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor 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 Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of Ford i.e., Ford and Deckers Outdoor go up and down completely randomly.
Pair Corralation between Ford and Deckers Outdoor
Taking into account the 90-day investment horizon Ford is expected to generate 1.57 times less return on investment than Deckers Outdoor. But when comparing it to its historical volatility, Ford Motor is 1.11 times less risky than Deckers Outdoor. It trades about 0.18 of its potential returns per unit of risk. Deckers Outdoor is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 16,955 in Deckers Outdoor on August 30, 2024 and sell it today you would earn a total of 2,222 from holding Deckers Outdoor or generate 13.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Deckers Outdoor
Performance |
| Timeline |
| Ford Motor |
| Deckers Outdoor |
Ford and Deckers Outdoor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Deckers Outdoor
The main advantage of trading using opposite Ford and Deckers Outdoor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Deckers Outdoor 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 Deckers Outdoor will offset losses from the drop in Deckers Outdoor's long position.The idea behind Ford Motor and Deckers Outdoor 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.| Deckers Outdoor vs. On Holding | Deckers Outdoor vs. Skechers USA | Deckers Outdoor vs. Nike Inc | Deckers Outdoor vs. Steven Madden |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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