Correlation Between Ford and First Trust
Can any of the company-specific risk be diversified away by investing in both Ford and First Trust 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 Trust 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 Trust Ultra, you can compare the effects of market volatilities on Ford and First Trust 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 Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and First Trust.
Diversification Opportunities for Ford and First Trust
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and First is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Trust Ultra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Ultra 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 Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Ultra has no effect on the direction of Ford i.e., Ford and First Trust go up and down completely randomly.
Pair Corralation between Ford and First Trust
Taking into account the 90-day investment horizon Ford Motor is expected to generate 25.87 times more return on investment than First Trust. However, Ford is 25.87 times more volatile than First Trust Ultra. It trades about 0.01 of its potential returns per unit of risk. First Trust Ultra is currently generating about 0.12 per unit of risk. If you would invest 1,115 in Ford Motor on August 30, 2024 and sell it today you would lose (5.00) from holding Ford Motor or give up 0.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. First Trust Ultra
Performance |
| Timeline |
| Ford Motor |
| First Trust Ultra |
Ford and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and First Trust
The main advantage of trading using opposite Ford and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, First Trust 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 Trust will offset losses from the drop in First Trust's long position.The idea behind Ford Motor and First Trust Ultra 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 Trust vs. First Trust Short | First Trust vs. First Trust Municipal | First Trust vs. First Trust Institutional | First Trust vs. JPMorgan Ultra Short Municipal |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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