Correlation Between Ford and HEG
Can any of the company-specific risk be diversified away by investing in both Ford and HEG 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 HEG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and HEG Limited, you can compare the effects of market volatilities on Ford and HEG 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 HEG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and HEG.
Diversification Opportunities for Ford and HEG
Very good diversification
The 3 months correlation between Ford and HEG is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and HEG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEG Limited 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 HEG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEG Limited has no effect on the direction of Ford i.e., Ford and HEG go up and down completely randomly.
Pair Corralation between Ford and HEG
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the HEG. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 3.29 times less risky than HEG. The stock trades about -0.16 of its potential returns per unit of risk. The HEG Limited is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 41,800 in HEG Limited on September 16, 2024 and sell it today you would earn a total of 15,030 from holding HEG Limited or generate 35.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. HEG Limited
Performance |
| Timeline |
| Ford Motor |
| HEG Limited |
Ford and HEG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and HEG
The main advantage of trading using opposite Ford and HEG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, HEG 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 HEG will offset losses from the drop in HEG's long position.The idea behind Ford Motor and HEG Limited 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.| HEG vs. Reliance Industries Limited | HEG vs. Oil Natural Gas | HEG vs. ICICI Bank Limited | HEG vs. Bharti Airtel Limited |
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 Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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