Correlation Between Ford and ESCO Technologies
Can any of the company-specific risk be diversified away by investing in both Ford and ESCO Technologies 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 ESCO Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and ESCO Technologies, you can compare the effects of market volatilities on Ford and ESCO Technologies 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 ESCO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and ESCO Technologies.
Diversification Opportunities for Ford and ESCO Technologies
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and ESCO is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ESCO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESCO Technologies 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 ESCO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESCO Technologies has no effect on the direction of Ford i.e., Ford and ESCO Technologies go up and down completely randomly.
Pair Corralation between Ford and ESCO Technologies
Taking into account the 90-day investment horizon Ford is expected to generate 35.49 times less return on investment than ESCO Technologies. In addition to that, Ford is 1.12 times more volatile than ESCO Technologies. It trades about 0.01 of its total potential returns per unit of risk. ESCO Technologies is currently generating about 0.28 per unit of volatility. If you would invest 13,007 in ESCO Technologies on August 27, 2024 and sell it today you would earn a total of 1,887 from holding ESCO Technologies or generate 14.51% 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. ESCO Technologies
Performance |
| Timeline |
| Ford Motor |
| ESCO Technologies |
Ford and ESCO Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and ESCO Technologies
The main advantage of trading using opposite Ford and ESCO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, ESCO Technologies 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 ESCO Technologies will offset losses from the drop in ESCO Technologies' long position.The idea behind Ford Motor and ESCO Technologies 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.| ESCO Technologies vs. Novanta | ESCO Technologies vs. Sono Tek Corp | ESCO Technologies vs. Itron Inc | ESCO Technologies vs. Badger Meter |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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