Correlation Between Ford and M3 Metals
Can any of the company-specific risk be diversified away by investing in both Ford and M3 Metals 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 M3 Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and M3 Metals Corp, you can compare the effects of market volatilities on Ford and M3 Metals 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 M3 Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and M3 Metals.
Diversification Opportunities for Ford and M3 Metals
Good diversification
The 3 months correlation between Ford and MLGCF is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and M3 Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M3 Metals Corp 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 M3 Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M3 Metals Corp has no effect on the direction of Ford i.e., Ford and M3 Metals go up and down completely randomly.
Pair Corralation between Ford and M3 Metals
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.75 times more return on investment than M3 Metals. However, Ford Motor is 1.33 times less risky than M3 Metals. It trades about 0.12 of its potential returns per unit of risk. M3 Metals Corp is currently generating about -0.21 per unit of risk. If you would invest 1,022 in Ford Motor on September 5, 2024 and sell it today you would earn a total of 52.00 from holding Ford Motor or generate 5.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. M3 Metals Corp
Performance |
| Timeline |
| Ford Motor |
| M3 Metals Corp |
Ford and M3 Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and M3 Metals
The main advantage of trading using opposite Ford and M3 Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, M3 Metals 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 M3 Metals will offset losses from the drop in M3 Metals' long position.The idea behind Ford Motor and M3 Metals Corp 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.| M3 Metals vs. Qubec Nickel Corp | M3 Metals vs. IGO Limited | M3 Metals vs. Avarone Metals | M3 Metals vs. Elcora Advanced Materials |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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