Correlation Between Ford and Emetals
Can any of the company-specific risk be diversified away by investing in both Ford and Emetals 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 Emetals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Emetals, you can compare the effects of market volatilities on Ford and Emetals 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 Emetals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Emetals.
Diversification Opportunities for Ford and Emetals
Modest diversification
The 3 months correlation between Ford and Emetals is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Emetals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emetals 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 Emetals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emetals has no effect on the direction of Ford i.e., Ford and Emetals go up and down completely randomly.
Pair Corralation between Ford and Emetals
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Emetals. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.17 times less risky than Emetals. The stock trades about -0.05 of its potential returns per unit of risk. The Emetals is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 0.40 in Emetals on September 22, 2024 and sell it today you would earn a total of 0.10 from holding Emetals or generate 25.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.46% |
| Values | Daily Returns |
Ford Motor vs. Emetals
Performance |
| Timeline |
| Ford Motor |
| Emetals |
Ford and Emetals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Emetals
The main advantage of trading using opposite Ford and Emetals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Emetals 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 Emetals will offset losses from the drop in Emetals' long position.The idea behind Ford Motor and Emetals 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.| Emetals vs. Northern Star Resources | Emetals vs. Evolution Mining | Emetals vs. Bluescope Steel | Emetals vs. Sandfire Resources NL |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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