Correlation Between Ford and Hammond Power
Can any of the company-specific risk be diversified away by investing in both Ford and Hammond Power 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 Hammond Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Hammond Power Solutions, you can compare the effects of market volatilities on Ford and Hammond Power 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 Hammond Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Hammond Power.
Diversification Opportunities for Ford and Hammond Power
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Hammond is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Hammond Power Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hammond Power Solutions 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 Hammond Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hammond Power Solutions has no effect on the direction of Ford i.e., Ford and Hammond Power go up and down completely randomly.
Pair Corralation between Ford and Hammond Power
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.46 times more return on investment than Hammond Power. However, Ford Motor is 2.17 times less risky than Hammond Power. It trades about 0.07 of its potential returns per unit of risk. Hammond Power Solutions is currently generating about -0.21 per unit of risk. If you would invest 988.00 in Ford Motor on November 4, 2024 and sell it today you would earn a total of 20.00 from holding Ford Motor or generate 2.02% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.91% |
| Values | Daily Returns |
Ford Motor vs. Hammond Power Solutions
Performance |
| Timeline |
| Ford Motor |
| Hammond Power Solutions |
Ford and Hammond Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Hammond Power
The main advantage of trading using opposite Ford and Hammond Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Hammond Power 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 Hammond Power will offset losses from the drop in Hammond Power's long position.The idea behind Ford Motor and Hammond Power Solutions 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.| Hammond Power vs. Hammond Manufacturing | Hammond Power vs. Firan Technology Group | Hammond Power vs. Supremex | Hammond Power vs. Geodrill 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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