Correlation Between Ford and ETC Group
Can any of the company-specific risk be diversified away by investing in both Ford and ETC Group 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 ETC Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and ETC Group Global, you can compare the effects of market volatilities on Ford and ETC Group 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 ETC Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and ETC Group.
Diversification Opportunities for Ford and ETC Group
Poor diversification
The 3 months correlation between Ford and ETC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and ETC Group Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETC Group Global 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 ETC Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETC Group Global has no effect on the direction of Ford i.e., Ford and ETC Group go up and down completely randomly.
Pair Corralation between Ford and ETC Group
Taking into account the 90-day investment horizon Ford is expected to generate 1.61 times less return on investment than ETC Group. But when comparing it to its historical volatility, Ford Motor is 1.02 times less risky than ETC Group. It trades about 0.23 of its potential returns per unit of risk. ETC Group Global is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 82,910 in ETC Group Global on September 1, 2024 and sell it today you would earn a total of 14,190 from holding ETC Group Global or generate 17.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. ETC Group Global
Performance |
| Timeline |
| Ford Motor |
| ETC Group Global |
Ford and ETC Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and ETC Group
The main advantage of trading using opposite Ford and ETC Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, ETC Group 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 ETC Group will offset losses from the drop in ETC Group's long position.The idea behind Ford Motor and ETC Group Global 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.| ETC Group vs. Vanguard FTSE Developed | ETC Group vs. Leverage Shares 2x | ETC Group vs. Amundi Index Solutions | ETC Group vs. Amundi Index Solutions |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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