Correlation Between Ford and Natural Gas
Can any of the company-specific risk be diversified away by investing in both Ford and Natural Gas 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 Natural Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Natural Gas Mining, you can compare the effects of market volatilities on Ford and Natural Gas 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 Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Natural Gas.
Diversification Opportunities for Ford and Natural Gas
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Natural is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Natural Gas Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Mining 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 Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Mining has no effect on the direction of Ford i.e., Ford and Natural Gas go up and down completely randomly.
Pair Corralation between Ford and Natural Gas
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Natural Gas. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.34 times less risky than Natural Gas. The stock trades about -0.18 of its potential returns per unit of risk. The Natural Gas Mining is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest 4,225 in Natural Gas Mining on October 26, 2024 and sell it today you would lose (195.00) from holding Natural Gas Mining or give up 4.62% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 85.0% |
Values | Daily Returns |
Ford Motor vs. Natural Gas Mining
Performance |
Timeline |
Ford Motor |
Natural Gas Mining |
Ford and Natural Gas Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ford and Natural Gas
The main advantage of trading using opposite Ford and Natural Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Natural Gas 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 Natural Gas will offset losses from the drop in Natural Gas' long position.The idea behind Ford Motor and Natural Gas Mining 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.Natural Gas vs. Odin for Investment | Natural Gas vs. B Investments Holding | Natural Gas vs. ODIN Investments | Natural Gas vs. Industrial Engineering Projects |
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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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