Correlation Between Ford and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Ford and LOréal SA 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 LOréal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and LOral SA, you can compare the effects of market volatilities on Ford and LOréal SA 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 LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and LOréal SA.
Diversification Opportunities for Ford and LOréal SA
Very good diversification
The 3 months correlation between Ford and LOréal is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA 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 LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Ford i.e., Ford and LOréal SA go up and down completely randomly.
Pair Corralation between Ford and LOréal SA
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.22 times more return on investment than LOréal SA. However, Ford is 1.22 times more volatile than LOral SA. It trades about 0.01 of its potential returns per unit of risk. LOral SA is currently generating about 0.0 per unit of risk. If you would invest 1,132 in Ford Motor on August 24, 2024 and sell it today you would lose (14.00) from holding Ford Motor or give up 1.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. LOral SA
Performance |
| Timeline |
| Ford Motor |
| LOréal SA |
Ford and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and LOréal SA
The main advantage of trading using opposite Ford and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, LOréal SA 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 LOréal SA will offset losses from the drop in LOréal SA's long position.The idea behind Ford Motor and LOral SA 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.| LOréal SA vs. Inter Parfums | LOréal SA vs. European Wax Center | LOréal SA vs. Estee Lauder Companies | LOréal SA vs. Reckitt Benckiser Group |
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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