Correlation Between Ford and KBR
Can any of the company-specific risk be diversified away by investing in both Ford and KBR 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 KBR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and KBR Inc, you can compare the effects of market volatilities on Ford and KBR 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 KBR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and KBR.
Diversification Opportunities for Ford and KBR
Average diversification
The 3 months correlation between Ford and KBR is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and KBR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBR Inc 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 KBR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBR Inc has no effect on the direction of Ford i.e., Ford and KBR go up and down completely randomly.
Pair Corralation between Ford and KBR
Taking into account the 90-day investment horizon Ford is expected to generate 1.54 times less return on investment than KBR. In addition to that, Ford is 1.47 times more volatile than KBR Inc. It trades about 0.01 of its total potential returns per unit of risk. KBR Inc is currently generating about 0.03 per unit of volatility. If you would invest 5,093 in KBR Inc on August 28, 2024 and sell it today you would earn a total of 1,050 from holding KBR Inc or generate 20.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. KBR Inc
Performance |
| Timeline |
| Ford Motor |
| KBR Inc |
Ford and KBR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and KBR
The main advantage of trading using opposite Ford and KBR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, KBR 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 KBR will offset losses from the drop in KBR's long position.The idea behind Ford Motor and KBR Inc 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.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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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