Correlation Between Ford and First Citizens
Can any of the company-specific risk be diversified away by investing in both Ford and First Citizens 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 First Citizens into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and First Citizens BancShares, you can compare the effects of market volatilities on Ford and First Citizens 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 First Citizens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and First Citizens.
Diversification Opportunities for Ford and First Citizens
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and First is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Citizens BancShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Citizens BancShares 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 First Citizens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Citizens BancShares has no effect on the direction of Ford i.e., Ford and First Citizens go up and down completely randomly.
Pair Corralation between Ford and First Citizens
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.38 times more return on investment than First Citizens. However, Ford is 1.38 times more volatile than First Citizens BancShares. It trades about 0.17 of its potential returns per unit of risk. First Citizens BancShares is currently generating about -0.11 per unit of risk. If you would invest 1,033 in Ford Motor on August 31, 2024 and sell it today you would earn a total of 77.00 from holding Ford Motor or generate 7.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. First Citizens BancShares
Performance |
| Timeline |
| Ford Motor |
| First Citizens BancShares |
Ford and First Citizens Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and First Citizens
The main advantage of trading using opposite Ford and First Citizens positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, First Citizens 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 First Citizens will offset losses from the drop in First Citizens' long position.The idea behind Ford Motor and First Citizens BancShares 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.| First Citizens vs. Fifth Third Bancorp | First Citizens vs. Dime Community Bancshares | First Citizens vs. Fifth Third Bancorp | First Citizens vs. Northern Trust |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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