Correlation Between Ford and Essential
Can any of the company-specific risk be diversified away by investing in both Ford and Essential 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 Essential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Essential 40 Stock, you can compare the effects of market volatilities on Ford and Essential 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 Essential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Essential.
Diversification Opportunities for Ford and Essential
Significant diversification
The 3 months correlation between Ford and Essential is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Essential 40 Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential 40 Stock 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 Essential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential 40 Stock has no effect on the direction of Ford i.e., Ford and Essential go up and down completely randomly.
Pair Corralation between Ford and Essential
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.94 times more return on investment than Essential. However, Ford is 2.94 times more volatile than Essential 40 Stock. It trades about 0.19 of its potential returns per unit of risk. Essential 40 Stock is currently generating about 0.24 per unit of risk. If you would invest 1,027 in Ford Motor on August 30, 2024 and sell it today you would earn a total of 83.00 from holding Ford Motor or generate 8.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Essential 40 Stock
Performance |
| Timeline |
| Ford Motor |
| Essential 40 Stock |
Ford and Essential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Essential
The main advantage of trading using opposite Ford and Essential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Essential 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 Essential will offset losses from the drop in Essential's long position.The idea behind Ford Motor and Essential 40 Stock 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.| Essential vs. Vanguard Total Stock | Essential vs. SPDR SP 500 | Essential vs. iShares Core SP | Essential vs. Vanguard Total Bond |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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