Correlation Between Ford and Equity Income
Can any of the company-specific risk be diversified away by investing in both Ford and Equity Income 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 Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Equity Income Fund, you can compare the effects of market volatilities on Ford and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Equity Income.
Diversification Opportunities for Ford and Equity Income
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Equity is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Ford i.e., Ford and Equity Income go up and down completely randomly.
Pair Corralation between Ford and Equity Income
Taking into account the 90-day investment horizon Ford is expected to generate 1.03 times less return on investment than Equity Income. In addition to that, Ford is 3.05 times more volatile than Equity Income Fund. It trades about 0.02 of its total potential returns per unit of risk. Equity Income Fund is currently generating about 0.06 per unit of volatility. If you would invest 1,694 in Equity Income Fund on September 14, 2024 and sell it today you would earn a total of 411.00 from holding Equity Income Fund or generate 24.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Ford Motor vs. Equity Income Fund
Performance |
| Timeline |
| Ford Motor |
| Equity Income |
Ford and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Equity Income
The main advantage of trading using opposite Ford and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.The idea behind Ford Motor and Equity Income Fund 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.| Equity Income vs. Europac Gold Fund | Equity Income vs. Global Gold Fund | Equity Income vs. Oppenheimer Gold Special | Equity Income vs. Gamco Global Gold |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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