Correlation Between Ford and Essex Property
Can any of the company-specific risk be diversified away by investing in both Ford and Essex Property 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 Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Essex Property Trust, you can compare the effects of market volatilities on Ford and Essex Property 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 Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Essex Property.
Diversification Opportunities for Ford and Essex Property
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Essex is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust 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 Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Ford i.e., Ford and Essex Property go up and down completely randomly.
Pair Corralation between Ford and Essex Property
Taking into account the 90-day investment horizon Ford is expected to generate 3.13 times less return on investment than Essex Property. In addition to that, Ford is 1.56 times more volatile than Essex Property Trust. It trades about 0.01 of its total potential returns per unit of risk. Essex Property Trust is currently generating about 0.07 per unit of volatility. If you would invest 19,659 in Essex Property Trust on August 28, 2024 and sell it today you would earn a total of 11,301 from holding Essex Property Trust or generate 57.49% 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. Essex Property Trust
Performance |
| Timeline |
| Ford Motor |
| Essex Property Trust |
Ford and Essex Property Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Essex Property
The main advantage of trading using opposite Ford and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Essex Property 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 Essex Property will offset losses from the drop in Essex Property's long position.The idea behind Ford Motor and Essex Property Trust 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.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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