Correlation Between Ford and Herc Holdings
Can any of the company-specific risk be diversified away by investing in both Ford and Herc Holdings 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 Herc Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Herc Holdings, you can compare the effects of market volatilities on Ford and Herc Holdings 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 Herc Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Herc Holdings.
Diversification Opportunities for Ford and Herc Holdings
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Herc is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Herc Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herc Holdings 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 Herc Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herc Holdings has no effect on the direction of Ford i.e., Ford and Herc Holdings go up and down completely randomly.
Pair Corralation between Ford and Herc Holdings
Taking into account the 90-day investment horizon Ford is expected to generate 1.27 times less return on investment than Herc Holdings. But when comparing it to its historical volatility, Ford Motor is 1.34 times less risky than Herc Holdings. It trades about 0.18 of its potential returns per unit of risk. Herc Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 19,800 in Herc Holdings on August 30, 2024 and sell it today you would earn a total of 2,000 from holding Herc Holdings or generate 10.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Herc Holdings
Performance |
| Timeline |
| Ford Motor |
| Herc Holdings |
Ford and Herc Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Herc Holdings
The main advantage of trading using opposite Ford and Herc Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Herc Holdings 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 Herc Holdings will offset losses from the drop in Herc Holdings' long position.The idea behind Ford Motor and Herc Holdings 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.| Herc Holdings vs. YOOMA WELLNESS INC | Herc Holdings vs. Vastned Retail NV | Herc Holdings vs. SHIP HEALTHCARE HLDGINC | Herc Holdings vs. Retail Estates NV |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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