Correlation Between Ford and International Flavors
Can any of the company-specific risk be diversified away by investing in both Ford and International Flavors 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 International Flavors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and International Flavors Fragrances, you can compare the effects of market volatilities on Ford and International Flavors 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 International Flavors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and International Flavors.
Diversification Opportunities for Ford and International Flavors
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and International is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors 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 International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of Ford i.e., Ford and International Flavors go up and down completely randomly.
Pair Corralation between Ford and International Flavors
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.83 times more return on investment than International Flavors. However, Ford Motor is 1.2 times less risky than International Flavors. It trades about 0.01 of its potential returns per unit of risk. International Flavors Fragrances is currently generating about -0.11 per unit of risk. If you would invest 1,122 in Ford Motor on August 27, 2024 and sell it today you would lose (4.00) from holding Ford Motor or give up 0.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. International Flavors Fragranc
Performance |
| Timeline |
| Ford Motor |
| International Flavors |
Ford and International Flavors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and International Flavors
The main advantage of trading using opposite Ford and International Flavors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, International Flavors 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 International Flavors will offset losses from the drop in International Flavors' long position.The idea behind Ford Motor and International Flavors Fragrances 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.| International Flavors vs. DXC Technology Co | International Flavors vs. Clearside Biomedical | International Flavors vs. IMAGIN MEDICAL INC | International Flavors vs. SMA Solar Technology |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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