Correlation Between Ford and NEXG11
Can any of the company-specific risk be diversified away by investing in both Ford and NEXG11 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 NEXG11 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and NEXG11, you can compare the effects of market volatilities on Ford and NEXG11 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 NEXG11. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and NEXG11.
Diversification Opportunities for Ford and NEXG11
Average diversification
The 3 months correlation between Ford and NEXG11 is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and NEXG11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXG11 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 NEXG11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXG11 has no effect on the direction of Ford i.e., Ford and NEXG11 go up and down completely randomly.
Pair Corralation between Ford and NEXG11
Taking into account the 90-day investment horizon Ford is expected to generate 16.38 times less return on investment than NEXG11. In addition to that, Ford is 5.96 times more volatile than NEXG11. It trades about 0.0 of its total potential returns per unit of risk. NEXG11 is currently generating about 0.33 per unit of volatility. If you would invest 9,086 in NEXG11 on September 19, 2024 and sell it today you would earn a total of 3,514 from holding NEXG11 or generate 38.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 54.95% |
| Values | Daily Returns |
Ford Motor vs. NEXG11
Performance |
| Timeline |
| Ford Motor |
| NEXG11 |
Ford and NEXG11 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and NEXG11
The main advantage of trading using opposite Ford and NEXG11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, NEXG11 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 NEXG11 will offset losses from the drop in NEXG11's long position.The idea behind Ford Motor and NEXG11 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.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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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