Correlation Between Ford and Centrais Eltricas
Can any of the company-specific risk be diversified away by investing in both Ford and Centrais Eltricas 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 Centrais Eltricas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on Ford and Centrais Eltricas 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 Centrais Eltricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Centrais Eltricas.
Diversification Opportunities for Ford and Centrais Eltricas
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Centrais is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas 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 Centrais Eltricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Eltricas has no effect on the direction of Ford i.e., Ford and Centrais Eltricas go up and down completely randomly.
Pair Corralation between Ford and Centrais Eltricas
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.3 times more return on investment than Centrais Eltricas. However, Ford is 1.3 times more volatile than Centrais Eltricas Brasileiras. It trades about 0.01 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about 0.01 per unit of risk. If you would invest 1,073 in Ford Motor on August 31, 2024 and sell it today you would earn a total of 40.00 from holding Ford Motor or generate 3.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.58% |
| Values | Daily Returns |
Ford Motor vs. Centrais Eltricas Brasileiras
Performance |
| Timeline |
| Ford Motor |
| Centrais Eltricas |
Ford and Centrais Eltricas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Centrais Eltricas
The main advantage of trading using opposite Ford and Centrais Eltricas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Centrais Eltricas 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 Centrais Eltricas will offset losses from the drop in Centrais Eltricas' long position.The idea behind Ford Motor and Centrais Eltricas Brasileiras 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.| Centrais Eltricas vs. CTEEP Companhia | Centrais Eltricas vs. Companhia Energtica de | Centrais Eltricas vs. CPFL Energia SA |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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