Correlation Between Ford and Star Diamond
Can any of the company-specific risk be diversified away by investing in both Ford and Star Diamond 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 Star Diamond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Star Diamond, you can compare the effects of market volatilities on Ford and Star Diamond 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 Star Diamond. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Star Diamond.
Diversification Opportunities for Ford and Star Diamond
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Star is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Star Diamond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Diamond 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 Star Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Diamond has no effect on the direction of Ford i.e., Ford and Star Diamond go up and down completely randomly.
Pair Corralation between Ford and Star Diamond
Taking into account the 90-day investment horizon Ford is expected to generate 6.29 times less return on investment than Star Diamond. But when comparing it to its historical volatility, Ford Motor is 9.0 times less risky than Star Diamond. It trades about 0.05 of its potential returns per unit of risk. Star Diamond is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2.00 in Star Diamond on August 28, 2024 and sell it today you would lose (0.95) from holding Star Diamond or give up 47.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
Ford Motor vs. Star Diamond
Performance |
| Timeline |
| Ford Motor |
| Star Diamond |
Ford and Star Diamond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Star Diamond
The main advantage of trading using opposite Ford and Star Diamond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Star Diamond 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 Star Diamond will offset losses from the drop in Star Diamond's long position.The idea behind Ford Motor and Star Diamond 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.| Star Diamond vs. Superior Plus Corp | Star Diamond vs. NMI Holdings | Star Diamond vs. Origin Agritech | Star Diamond vs. SIVERS SEMICONDUCTORS AB |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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