Correlation Between Ford and Indal Aluminium
Can any of the company-specific risk be diversified away by investing in both Ford and Indal Aluminium 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 Indal Aluminium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Indal Aluminium Industry, you can compare the effects of market volatilities on Ford and Indal Aluminium 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 Indal Aluminium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Indal Aluminium.
Diversification Opportunities for Ford and Indal Aluminium
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Indal is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Indal Aluminium Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indal Aluminium Industry 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 Indal Aluminium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indal Aluminium Industry has no effect on the direction of Ford i.e., Ford and Indal Aluminium go up and down completely randomly.
Pair Corralation between Ford and Indal Aluminium
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.47 times more return on investment than Indal Aluminium. However, Ford Motor is 2.15 times less risky than Indal Aluminium. It trades about -0.18 of its potential returns per unit of risk. Indal Aluminium Industry is currently generating about -0.26 per unit of risk. If you would invest 1,140 in Ford Motor on October 26, 2024 and sell it today you would lose (126.50) from holding Ford Motor or give up 11.1% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 97.5% |
| Values | Daily Returns |
Ford Motor vs. Indal Aluminium Industry
Performance |
| Timeline |
| Ford Motor |
| Indal Aluminium Industry |
Ford and Indal Aluminium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Indal Aluminium
The main advantage of trading using opposite Ford and Indal Aluminium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Indal Aluminium 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 Indal Aluminium will offset losses from the drop in Indal Aluminium's long position.The idea behind Ford Motor and Indal Aluminium Industry 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.| Indal Aluminium vs. Intanwijaya Internasional Tbk | Indal Aluminium vs. Alumindo Light Metal | Indal Aluminium vs. Champion Pacific Indonesia | Indal Aluminium vs. Betonjaya Manunggal Tbk |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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