Correlation Between Ford and First Merchants
Can any of the company-specific risk be diversified away by investing in both Ford and First Merchants 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 Merchants 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 Merchants, you can compare the effects of market volatilities on Ford and First Merchants 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 Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and First Merchants.
Diversification Opportunities for Ford and First Merchants
0.12 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and First is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants 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 Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Ford i.e., Ford and First Merchants go up and down completely randomly.
Pair Corralation between Ford and First Merchants
Taking into account the 90-day investment horizon Ford Motor is expected to generate 3.02 times more return on investment than First Merchants. However, Ford is 3.02 times more volatile than First Merchants. It trades about 0.04 of its potential returns per unit of risk. First Merchants is currently generating about 0.07 per unit of risk. If you would invest 969.00 in Ford Motor on August 24, 2024 and sell it today you would earn a total of 156.00 from holding Ford Motor or generate 16.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. First Merchants
Performance |
| Timeline |
| Ford Motor |
| First Merchants |
Ford and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and First Merchants
The main advantage of trading using opposite Ford and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, First Merchants 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 Merchants will offset losses from the drop in First Merchants' long position.The idea behind Ford Motor and First Merchants 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 Merchants vs. Banco Bradesco SA | First Merchants vs. Itau Unibanco Banco | First Merchants vs. Banco Santander Brasil | First Merchants vs. Western Alliance Bancorporation |
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 Stocks Directory module to find actively traded stocks across global markets.
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