Correlation Between Ford and Fair Oaks
Can any of the company-specific risk be diversified away by investing in both Ford and Fair Oaks 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 Fair Oaks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Fair Oaks Income, you can compare the effects of market volatilities on Ford and Fair Oaks 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 Fair Oaks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Fair Oaks.
Diversification Opportunities for Ford and Fair Oaks
Poor diversification
The 3 months correlation between Ford and Fair is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Fair Oaks Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Oaks Income 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 Fair Oaks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Oaks Income has no effect on the direction of Ford i.e., Ford and Fair Oaks go up and down completely randomly.
Pair Corralation between Ford and Fair Oaks
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.54 times more return on investment than Fair Oaks. However, Ford is 1.54 times more volatile than Fair Oaks Income. It trades about 0.25 of its potential returns per unit of risk. Fair Oaks Income is currently generating about 0.14 per unit of risk. If you would invest 1,008 in Ford Motor on September 2, 2024 and sell it today you would earn a total of 105.00 from holding Ford Motor or generate 10.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. Fair Oaks Income
Performance |
| Timeline |
| Ford Motor |
| Fair Oaks Income |
Ford and Fair Oaks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Fair Oaks
The main advantage of trading using opposite Ford and Fair Oaks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Fair Oaks 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 Fair Oaks will offset losses from the drop in Fair Oaks' long position.The idea behind Ford Motor and Fair Oaks Income 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.| Fair Oaks vs. Toyota Motor Corp | Fair Oaks vs. SoftBank Group Corp | Fair Oaks vs. OTP Bank Nyrt | Fair Oaks vs. Las Vegas Sands |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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