Correlation Between Ford and Devon Energy
Can any of the company-specific risk be diversified away by investing in both Ford and Devon Energy 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 Devon Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Devon Energy, you can compare the effects of market volatilities on Ford and Devon Energy 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 Devon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Devon Energy.
Diversification Opportunities for Ford and Devon Energy
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Devon is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Ford i.e., Ford and Devon Energy go up and down completely randomly.
Pair Corralation between Ford and Devon Energy
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.51 times more return on investment than Devon Energy. However, Ford is 1.51 times more volatile than Devon Energy. It trades about 0.0 of its potential returns per unit of risk. Devon Energy is currently generating about -0.02 per unit of risk. If you would invest 1,194 in Ford Motor on August 27, 2024 and sell it today you would lose (76.00) from holding Ford Motor or give up 6.37% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Devon Energy
Performance |
| Timeline |
| Ford Motor |
| Devon Energy |
Ford and Devon Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Devon Energy
The main advantage of trading using opposite Ford and Devon Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Devon Energy 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 Devon Energy will offset losses from the drop in Devon Energy's long position.The idea behind Ford Motor and Devon Energy 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.| Devon Energy vs. Coterra Energy | Devon Energy vs. Diamondback Energy | Devon Energy vs. EOG Resources | Devon Energy vs. ConocoPhillips |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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