Correlation Between Ford and Freedom Bank
Can any of the company-specific risk be diversified away by investing in both Ford and Freedom 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 Freedom 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 Freedom Bank of, you can compare the effects of market volatilities on Ford and Freedom 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 Freedom Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Freedom Bank.
Diversification Opportunities for Ford and Freedom Bank
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Freedom is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Freedom Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freedom 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 Freedom Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freedom Bank has no effect on the direction of Ford i.e., Ford and Freedom Bank go up and down completely randomly.
Pair Corralation between Ford and Freedom Bank
Taking into account the 90-day investment horizon Ford Motor is expected to generate 4.12 times more return on investment than Freedom Bank. However, Ford is 4.12 times more volatile than Freedom Bank of. It trades about 0.04 of its potential returns per unit of risk. Freedom Bank of is currently generating about 0.09 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 Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Freedom Bank of
Performance |
| Timeline |
| Ford Motor |
| Freedom Bank |
Ford and Freedom Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Freedom Bank
The main advantage of trading using opposite Ford and Freedom Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Freedom 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 Freedom Bank will offset losses from the drop in Freedom Bank's long position.The idea behind Ford Motor and Freedom Bank of 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.| Freedom Bank vs. Washington Business Bank | Freedom Bank vs. National Capital Bank | Freedom Bank vs. Community Heritage Financial | Freedom Bank vs. Citizens Financial Corp |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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