Correlation Between Ford and Esso Public
Can any of the company-specific risk be diversified away by investing in both Ford and Esso Public 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 Esso Public into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Esso Public, you can compare the effects of market volatilities on Ford and Esso Public 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 Esso Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Esso Public.
Diversification Opportunities for Ford and Esso Public
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and Esso is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Esso Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Esso Public 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 Esso Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Esso Public has no effect on the direction of Ford i.e., Ford and Esso Public go up and down completely randomly.
Pair Corralation between Ford and Esso Public
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Esso Public. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.53 times less risky than Esso Public. The stock trades about -0.03 of its potential returns per unit of risk. The Esso Public is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 12.00 in Esso Public on November 8, 2024 and sell it today you would earn a total of 2.00 from holding Esso Public or generate 16.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.74% |
| Values | Daily Returns |
Ford Motor vs. Esso Public
Performance |
| Timeline |
| Ford Motor |
| Esso Public |
Ford and Esso Public Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Esso Public
The main advantage of trading using opposite Ford and Esso Public positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Esso Public 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 Esso Public will offset losses from the drop in Esso Public's long position.The idea behind Ford Motor and Esso Public 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.| Esso Public vs. Neinor Homes SA | Esso Public vs. CarsalesCom | Esso Public vs. CITY OFFICE REIT | Esso Public vs. INVITATION HOMES DL |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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