Correlation Between Ford and Headwater Exploration
Can any of the company-specific risk be diversified away by investing in both Ford and Headwater Exploration 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 Headwater Exploration into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Headwater Exploration, you can compare the effects of market volatilities on Ford and Headwater Exploration 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 Headwater Exploration. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Headwater Exploration.
Diversification Opportunities for Ford and Headwater Exploration
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ford and Headwater is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Headwater Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Headwater Exploration 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 Headwater Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Headwater Exploration has no effect on the direction of Ford i.e., Ford and Headwater Exploration go up and down completely randomly.
Pair Corralation between Ford and Headwater Exploration
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.24 times more return on investment than Headwater Exploration. However, Ford is 1.24 times more volatile than Headwater Exploration. It trades about 0.23 of its potential returns per unit of risk. Headwater Exploration is currently generating about 0.02 per unit of risk. If you would invest 1,015 in Ford Motor on September 1, 2024 and sell it today you would earn a total of 98.00 from holding Ford Motor or generate 9.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. Headwater Exploration
Performance |
| Timeline |
| Ford Motor |
| Headwater Exploration |
Ford and Headwater Exploration Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Headwater Exploration
The main advantage of trading using opposite Ford and Headwater Exploration positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Headwater Exploration 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 Headwater Exploration will offset losses from the drop in Headwater Exploration's long position.The idea behind Ford Motor and Headwater Exploration 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.| Headwater Exploration vs. Tamarack Valley Energy | Headwater Exploration vs. Gear Energy | Headwater Exploration vs. Cardinal Energy | Headwater Exploration vs. NuVista Energy |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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