Correlation Between Ford and Diamondback Energy
Can any of the company-specific risk be diversified away by investing in both Ford and Diamondback Energy 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 Diamondback Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Diamondback Energy, you can compare the effects of market volatilities on Ford and Diamondback Energy 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 Diamondback Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Diamondback Energy.
Diversification Opportunities for Ford and Diamondback Energy
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Diamondback is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Diamondback Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondback Energy 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 Diamondback Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondback Energy has no effect on the direction of Ford i.e., Ford and Diamondback Energy go up and down completely randomly.
Pair Corralation between Ford and Diamondback Energy
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.45 times more return on investment than Diamondback Energy. However, Ford is 1.45 times more volatile than Diamondback Energy. It trades about 0.04 of its potential returns per unit of risk. Diamondback Energy is currently generating about 0.04 per unit of risk. If you would invest 1,122 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Diamondback Energy
Performance |
| Timeline |
| Ford Motor |
| Diamondback Energy |
Ford and Diamondback Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Diamondback Energy
The main advantage of trading using opposite Ford and Diamondback Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Diamondback Energy 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 Diamondback Energy will offset losses from the drop in Diamondback Energy's long position.The idea behind Ford Motor and Diamondback Energy 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.| Diamondback Energy vs. Devon Energy | Diamondback Energy vs. Coterra Energy | Diamondback Energy vs. EOG Resources | Diamondback Energy vs. ConocoPhillips |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Portfolio Holdings Check your current holdings and cash postion to detemine if your portfolio needs rebalancing | |
| Transaction History View history of all your transactions and understand their impact on performance | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Stocks Directory Find actively traded stocks across global markets |