Correlation Between Ford and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Ford and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and SPDR SP MIDCAP, you can compare the effects of market volatilities on Ford and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and SPDR SP.
Diversification Opportunities for Ford and SPDR SP
Poor diversification
The 3 months correlation between Ford and SPDR is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SPDR SP MIDCAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP MIDCAP 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP MIDCAP has no effect on the direction of Ford i.e., Ford and SPDR SP go up and down completely randomly.
Pair Corralation between Ford and SPDR SP
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the SPDR SP. In addition to that, Ford is 2.31 times more volatile than SPDR SP MIDCAP. It trades about -0.01 of its total potential returns per unit of risk. SPDR SP MIDCAP is currently generating about 0.08 per unit of volatility. If you would invest 48,884 in SPDR SP MIDCAP on November 9, 2024 and sell it today you would earn a total of 10,392 from holding SPDR SP MIDCAP or generate 21.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. SPDR SP MIDCAP
Performance |
| Timeline |
| Ford Motor |
| SPDR SP MIDCAP |
Ford and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and SPDR SP
The main advantage of trading using opposite Ford and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind Ford Motor and SPDR SP MIDCAP 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.| SPDR SP vs. iShares Core SP | SPDR SP vs. iShares Russell 2000 | SPDR SP vs. iShares MSCI EAFE | SPDR SP vs. iShares Russell 2000 |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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