Correlation Between Ford and James Hardie
Can any of the company-specific risk be diversified away by investing in both Ford and James Hardie 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 James Hardie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and James Hardie Industries, you can compare the effects of market volatilities on Ford and James Hardie 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 James Hardie. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and James Hardie.
Diversification Opportunities for Ford and James Hardie
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and James is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and James Hardie Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James Hardie Industries 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 James Hardie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James Hardie Industries has no effect on the direction of Ford i.e., Ford and James Hardie go up and down completely randomly.
Pair Corralation between Ford and James Hardie
Taking into account the 90-day investment horizon Ford is expected to generate 5.9 times less return on investment than James Hardie. But when comparing it to its historical volatility, Ford Motor is 1.07 times less risky than James Hardie. It trades about 0.01 of its potential returns per unit of risk. James Hardie Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 1,974 in James Hardie Industries on August 30, 2024 and sell it today you would earn a total of 1,690 from holding James Hardie Industries or generate 85.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Ford Motor vs. James Hardie Industries
Performance |
| Timeline |
| Ford Motor |
| James Hardie Industries |
Ford and James Hardie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and James Hardie
The main advantage of trading using opposite Ford and James Hardie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, James Hardie 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 James Hardie will offset losses from the drop in James Hardie's long position.The idea behind Ford Motor and James Hardie Industries 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.| James Hardie vs. Loma Negra Compania | James Hardie vs. Summit Materials | James Hardie vs. United States Lime | James Hardie vs. Eagle Materials |
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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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