Correlation Between Ford and Happy Creek
Can any of the company-specific risk be diversified away by investing in both Ford and Happy Creek 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 Happy Creek into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Happy Creek Minerals, you can compare the effects of market volatilities on Ford and Happy Creek 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 Happy Creek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Happy Creek.
Diversification Opportunities for Ford and Happy Creek
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Happy is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Happy Creek Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Happy Creek Minerals 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 Happy Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Happy Creek Minerals has no effect on the direction of Ford i.e., Ford and Happy Creek go up and down completely randomly.
Pair Corralation between Ford and Happy Creek
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Happy Creek. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 7.57 times less risky than Happy Creek. The stock trades about -0.18 of its potential returns per unit of risk. The Happy Creek Minerals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 5.00 in Happy Creek Minerals on September 12, 2024 and sell it today you would lose (0.50) from holding Happy Creek Minerals or give up 10.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. Happy Creek Minerals
Performance |
| Timeline |
| Ford Motor |
| Happy Creek Minerals |
Ford and Happy Creek Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Happy Creek
The main advantage of trading using opposite Ford and Happy Creek positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Happy Creek 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 Happy Creek will offset losses from the drop in Happy Creek's long position.The idea behind Ford Motor and Happy Creek Minerals 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.| Happy Creek vs. Information Services | Happy Creek vs. Canlan Ice Sports | Happy Creek vs. Verizon Communications CDR | Happy Creek vs. Rogers Communications |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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