Correlation Between Ford and Ferrum SA
Can any of the company-specific risk be diversified away by investing in both Ford and Ferrum SA 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 Ferrum SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Ferrum SA, you can compare the effects of market volatilities on Ford and Ferrum SA 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 Ferrum SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Ferrum SA.
Diversification Opportunities for Ford and Ferrum SA
Weak diversification
The 3 months correlation between Ford and Ferrum is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Ferrum SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrum SA 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 Ferrum SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrum SA has no effect on the direction of Ford i.e., Ford and Ferrum SA go up and down completely randomly.
Pair Corralation between Ford and Ferrum SA
Taking into account the 90-day investment horizon Ford is expected to generate 1.31 times less return on investment than Ferrum SA. But when comparing it to its historical volatility, Ford Motor is 2.0 times less risky than Ferrum SA. It trades about 0.13 of its potential returns per unit of risk. Ferrum SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 4,100 in Ferrum SA on October 24, 2024 and sell it today you would earn a total of 145.00 from holding Ferrum SA or generate 3.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 94.74% |
| Values | Daily Returns |
Ford Motor vs. Ferrum SA
Performance |
| Timeline |
| Ford Motor |
| Ferrum SA |
Ford and Ferrum SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Ferrum SA
The main advantage of trading using opposite Ford and Ferrum SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Ferrum SA 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 Ferrum SA will offset losses from the drop in Ferrum SA's long position.The idea behind Ford Motor and Ferrum SA 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.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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