Correlation Between Ford and Health Care
Can any of the company-specific risk be diversified away by investing in both Ford and Health Care 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 Health Care into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Health Care Ultrasector, you can compare the effects of market volatilities on Ford and Health Care 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 Health Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Health Care.
Diversification Opportunities for Ford and Health Care
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Health is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Health Care Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Health Care Ultrasector 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 Health Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Health Care Ultrasector has no effect on the direction of Ford i.e., Ford and Health Care go up and down completely randomly.
Pair Corralation between Ford and Health Care
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Health Care. In addition to that, Ford is 1.79 times more volatile than Health Care Ultrasector. It trades about -0.09 of its total potential returns per unit of risk. Health Care Ultrasector is currently generating about 0.25 per unit of volatility. If you would invest 10,101 in Health Care Ultrasector on November 9, 2024 and sell it today you would earn a total of 693.00 from holding Health Care Ultrasector or generate 6.86% 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. Health Care Ultrasector
Performance |
Timeline |
Ford Motor |
Health Care Ultrasector |
Ford and Health Care Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ford and Health Care
The main advantage of trading using opposite Ford and Health Care positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Health Care 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 Health Care will offset losses from the drop in Health Care's long position.The idea behind Ford Motor and Health Care Ultrasector 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.Health Care vs. Ab Small Cap | Health Care vs. Small Pany Growth | Health Care vs. Needham Small Cap | Health Care vs. Sp Smallcap 600 |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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