Correlation Between Ford and Methanex
Can any of the company-specific risk be diversified away by investing in both Ford and Methanex 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 Methanex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Methanex, you can compare the effects of market volatilities on Ford and Methanex 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 Methanex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Methanex.
Diversification Opportunities for Ford and Methanex
Very weak diversification
The 3 months correlation between Ford and Methanex is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Methanex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methanex 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 Methanex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methanex has no effect on the direction of Ford i.e., Ford and Methanex go up and down completely randomly.
Pair Corralation between Ford and Methanex
Taking into account the 90-day investment horizon Ford is expected to generate 7.12 times less return on investment than Methanex. In addition to that, Ford is 1.6 times more volatile than Methanex. It trades about 0.04 of its total potential returns per unit of risk. Methanex is currently generating about 0.47 per unit of volatility. If you would invest 5,560 in Methanex on August 27, 2024 and sell it today you would earn a total of 997.00 from holding Methanex or generate 17.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Methanex
Performance |
| Timeline |
| Ford Motor |
| Methanex |
Ford and Methanex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Methanex
The main advantage of trading using opposite Ford and Methanex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Methanex 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 Methanex will offset losses from the drop in Methanex's long position.The idea behind Ford Motor and Methanex 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.| Methanex vs. Finning International | Methanex vs. Keyera Corp | Methanex vs. Linamar | Methanex vs. Russel Metals |
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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