Correlation Between Ford and Neste Oil
Can any of the company-specific risk be diversified away by investing in both Ford and Neste Oil 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 Neste Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Neste Oil Oyj, you can compare the effects of market volatilities on Ford and Neste Oil 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 Neste Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Neste Oil.
Diversification Opportunities for Ford and Neste Oil
Good diversification
The 3 months correlation between Ford and Neste is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Neste Oil Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oil Oyj 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 Neste Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oil Oyj has no effect on the direction of Ford i.e., Ford and Neste Oil go up and down completely randomly.
Pair Corralation between Ford and Neste Oil
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.03 times more return on investment than Neste Oil. However, Ford is 1.03 times more volatile than Neste Oil Oyj. It trades about 0.01 of its potential returns per unit of risk. Neste Oil Oyj is currently generating about -0.07 per unit of risk. If you would invest 1,122 in Ford Motor on August 27, 2024 and sell it today you would lose (4.00) from holding Ford Motor or give up 0.36% 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. Neste Oil Oyj
Performance |
| Timeline |
| Ford Motor |
| Neste Oil Oyj |
Ford and Neste Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Neste Oil
The main advantage of trading using opposite Ford and Neste Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Neste Oil 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 Neste Oil will offset losses from the drop in Neste Oil's long position.The idea behind Ford Motor and Neste Oil Oyj 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.| Neste Oil vs. Fortum Oyj | Neste Oil vs. Sampo Oyj A | Neste Oil vs. Nordea Bank Abp | Neste Oil vs. UPM Kymmene Oyj |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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