Correlation Between Ford and Impac Mortgage
Can any of the company-specific risk be diversified away by investing in both Ford and Impac Mortgage 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 Impac Mortgage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Impac Mortgage Holdings, you can compare the effects of market volatilities on Ford and Impac Mortgage 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 Impac Mortgage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Impac Mortgage.
Diversification Opportunities for Ford and Impac Mortgage
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Impac is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Impac Mortgage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impac Mortgage Holdings 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 Impac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impac Mortgage Holdings has no effect on the direction of Ford i.e., Ford and Impac Mortgage go up and down completely randomly.
Pair Corralation between Ford and Impac Mortgage
Taking into account the 90-day investment horizon Ford is expected to generate 6.78 times less return on investment than Impac Mortgage. But when comparing it to its historical volatility, Ford Motor is 11.67 times less risky than Impac Mortgage. It trades about 0.25 of its potential returns per unit of risk. Impac Mortgage Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 4.00 in Impac Mortgage Holdings on September 2, 2024 and sell it today you would earn a total of 1.00 from holding Impac Mortgage Holdings or generate 25.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Impac Mortgage Holdings
Performance |
| Timeline |
| Ford Motor |
| Impac Mortgage Holdings |
Ford and Impac Mortgage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Impac Mortgage
The main advantage of trading using opposite Ford and Impac Mortgage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Impac Mortgage 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 Impac Mortgage will offset losses from the drop in Impac Mortgage's long position.The idea behind Ford Motor and Impac Mortgage Holdings 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.| Impac Mortgage vs. Diageo PLC ADR | Impac Mortgage vs. Four Seasons Education | Impac Mortgage vs. Peoples Educational Holdings | Impac Mortgage vs. Coursera |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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