Correlation Between Ford and Leslies
Can any of the company-specific risk be diversified away by investing in both Ford and Leslies 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 Leslies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Leslies, you can compare the effects of market volatilities on Ford and Leslies 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 Leslies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Leslies.
Diversification Opportunities for Ford and Leslies
Poor diversification
The 3 months correlation between Ford and Leslies is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Leslies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leslies 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 Leslies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leslies has no effect on the direction of Ford i.e., Ford and Leslies go up and down completely randomly.
Pair Corralation between Ford and Leslies
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.41 times more return on investment than Leslies. However, Ford Motor is 2.46 times less risky than Leslies. It trades about -0.01 of its potential returns per unit of risk. Leslies is currently generating about -0.04 per unit of risk. If you would invest 1,071 in Ford Motor on November 9, 2024 and sell it today you would lose (145.00) from holding Ford Motor or give up 13.54% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Leslies
Performance |
| Timeline |
| Ford Motor |
| Leslies |
Ford and Leslies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Leslies
The main advantage of trading using opposite Ford and Leslies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Leslies 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 Leslies will offset losses from the drop in Leslies' long position.The idea behind Ford Motor and Leslies 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.| Leslies vs. Sally Beauty Holdings | Leslies vs. ODP Corp | Leslies vs. 1 800 FLOWERSCOM | Leslies vs. Caseys General Stores |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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