Correlation Between Ford and Innospec
Can any of the company-specific risk be diversified away by investing in both Ford and Innospec 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 Innospec into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Innospec, you can compare the effects of market volatilities on Ford and Innospec 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 Innospec. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Innospec.
Diversification Opportunities for Ford and Innospec
Poor diversification
The 3 months correlation between Ford and Innospec is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec 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 Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Ford i.e., Ford and Innospec go up and down completely randomly.
Pair Corralation between Ford and Innospec
Taking into account the 90-day investment horizon Ford is expected to generate 4.82 times less return on investment than Innospec. But when comparing it to its historical volatility, Ford Motor is 1.18 times less risky than Innospec. It trades about 0.02 of its potential returns per unit of risk. Innospec is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 10,767 in Innospec on November 1, 2024 and sell it today you would earn a total of 794.00 from holding Innospec or generate 7.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Innospec
Performance |
| Timeline |
| Ford Motor |
| Innospec |
Ford and Innospec Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Innospec
The main advantage of trading using opposite Ford and Innospec positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Innospec 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 Innospec will offset losses from the drop in Innospec's long position.The idea behind Ford Motor and Innospec 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.| Innospec vs. Minerals Technologies | Innospec vs. Oil Dri | Innospec vs. Quaker Chemical | Innospec vs. Sensient Technologies |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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