Correlation Between Ford and IShares II
Can any of the company-specific risk be diversified away by investing in both Ford and IShares II 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 IShares II into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and iShares II Public, you can compare the effects of market volatilities on Ford and IShares II 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 IShares II. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and IShares II.
Diversification Opportunities for Ford and IShares II
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and IShares is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and iShares II Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares II Public 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 IShares II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares II Public has no effect on the direction of Ford i.e., Ford and IShares II go up and down completely randomly.
Pair Corralation between Ford and IShares II
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.75 times more return on investment than IShares II. However, Ford is 2.75 times more volatile than iShares II Public. It trades about 0.0 of its potential returns per unit of risk. iShares II Public is currently generating about -0.19 per unit of risk. If you would invest 1,122 in Ford Motor on August 29, 2024 and sell it today you would lose (12.00) from holding Ford Motor or give up 1.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. iShares II Public
Performance |
| Timeline |
| Ford Motor |
| iShares II Public |
Ford and IShares II Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and IShares II
The main advantage of trading using opposite Ford and IShares II positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, IShares II 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 IShares II will offset losses from the drop in IShares II's long position.The idea behind Ford Motor and iShares II Public 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.| IShares II vs. SPDR Dow Jones | IShares II vs. iShares SP 500 | IShares II vs. iShares Core MSCI | IShares II vs. iShares MSCI EM |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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