Correlation Between Ford and Legacy Iron
Can any of the company-specific risk be diversified away by investing in both Ford and Legacy Iron 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 Legacy Iron into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Legacy Iron Ore, you can compare the effects of market volatilities on Ford and Legacy Iron 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 Legacy Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Legacy Iron.
Diversification Opportunities for Ford and Legacy Iron
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Legacy is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Legacy Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Iron Ore 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 Legacy Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Iron Ore has no effect on the direction of Ford i.e., Ford and Legacy Iron go up and down completely randomly.
Pair Corralation between Ford and Legacy Iron
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.54 times more return on investment than Legacy Iron. However, Ford Motor is 1.85 times less risky than Legacy Iron. It trades about 0.01 of its potential returns per unit of risk. Legacy Iron Ore is currently generating about -0.03 per unit of risk. If you would invest 1,143 in Ford Motor on August 28, 2024 and sell it today you would lose (3.00) from holding Ford Motor or give up 0.26% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
Ford Motor vs. Legacy Iron Ore
Performance |
| Timeline |
| Ford Motor |
| Legacy Iron Ore |
Ford and Legacy Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Legacy Iron
The main advantage of trading using opposite Ford and Legacy Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Legacy Iron 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 Legacy Iron will offset losses from the drop in Legacy Iron's long position.The idea behind Ford Motor and Legacy Iron Ore 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.| Legacy Iron vs. Northern Star Resources | Legacy Iron vs. Evolution Mining | Legacy Iron vs. Bluescope Steel | Legacy Iron vs. Sandfire Resources NL |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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