Correlation Between Ford and Faysal Bank
Can any of the company-specific risk be diversified away by investing in both Ford and Faysal Bank 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 Faysal Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Faysal Bank, you can compare the effects of market volatilities on Ford and Faysal Bank 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 Faysal Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Faysal Bank.
Diversification Opportunities for Ford and Faysal Bank
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ford and Faysal is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Faysal Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faysal Bank 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 Faysal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faysal Bank has no effect on the direction of Ford i.e., Ford and Faysal Bank go up and down completely randomly.
Pair Corralation between Ford and Faysal Bank
Taking into account the 90-day investment horizon Ford is expected to generate 14.4 times less return on investment than Faysal Bank. But when comparing it to its historical volatility, Ford Motor is 1.06 times less risky than Faysal Bank. It trades about 0.01 of its potential returns per unit of risk. Faysal Bank is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,800 in Faysal Bank on August 29, 2024 and sell it today you would earn a total of 1,929 from holding Faysal Bank or generate 68.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.69% |
| Values | Daily Returns |
Ford Motor vs. Faysal Bank
Performance |
| Timeline |
| Ford Motor |
| Faysal Bank |
Ford and Faysal Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Faysal Bank
The main advantage of trading using opposite Ford and Faysal Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Faysal Bank 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 Faysal Bank will offset losses from the drop in Faysal Bank's long position.The idea behind Ford Motor and Faysal Bank 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.| Faysal Bank vs. Masood Textile Mills | Faysal Bank vs. Fauji Foods | Faysal Bank vs. KSB Pumps | Faysal Bank vs. Mari Petroleum |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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