Correlation Between Ford and Elastic NV
Can any of the company-specific risk be diversified away by investing in both Ford and Elastic NV 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 Elastic NV into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Elastic NV, you can compare the effects of market volatilities on Ford and Elastic NV 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 Elastic NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Elastic NV.
Diversification Opportunities for Ford and Elastic NV
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Elastic is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Elastic NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elastic NV 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 Elastic NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elastic NV has no effect on the direction of Ford i.e., Ford and Elastic NV go up and down completely randomly.
Pair Corralation between Ford and Elastic NV
Taking into account the 90-day investment horizon Ford is expected to generate 14.93 times less return on investment than Elastic NV. But when comparing it to its historical volatility, Ford Motor is 1.34 times less risky than Elastic NV. It trades about 0.04 of its potential returns per unit of risk. Elastic NV is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest 7,952 in Elastic NV on August 27, 2024 and sell it today you would earn a total of 3,196 from holding Elastic NV or generate 40.19% 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. Elastic NV
Performance |
| Timeline |
| Ford Motor |
| Elastic NV |
Ford and Elastic NV Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Elastic NV
The main advantage of trading using opposite Ford and Elastic NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Elastic NV 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 Elastic NV will offset losses from the drop in Elastic NV's long position.The idea behind Ford Motor and Elastic NV 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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