Correlation Between Ford and Fortinet
Can any of the company-specific risk be diversified away by investing in both Ford and Fortinet 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 Fortinet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Fortinet, you can compare the effects of market volatilities on Ford and Fortinet 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 Fortinet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Fortinet.
Diversification Opportunities for Ford and Fortinet
Poor diversification
The 3 months correlation between Ford and Fortinet is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet 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 Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Ford i.e., Ford and Fortinet go up and down completely randomly.
Pair Corralation between Ford and Fortinet
Taking into account the 90-day investment horizon Ford is expected to generate 2.47 times less return on investment than Fortinet. But when comparing it to its historical volatility, Ford Motor is 1.52 times less risky than Fortinet. It trades about 0.17 of its potential returns per unit of risk. Fortinet is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 7,874 in Fortinet on August 31, 2024 and sell it today you would earn a total of 1,532 from holding Fortinet or generate 19.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Fortinet
Performance |
| Timeline |
| Ford Motor |
| Fortinet |
Ford and Fortinet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Fortinet
The main advantage of trading using opposite Ford and Fortinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Fortinet 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 Fortinet will offset losses from the drop in Fortinet's long position.The idea behind Ford Motor and Fortinet 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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