Correlation Between Ford and NGL Energy
Can any of the company-specific risk be diversified away by investing in both Ford and NGL Energy 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 NGL Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and NGL Energy Partners, you can compare the effects of market volatilities on Ford and NGL Energy 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 NGL Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and NGL Energy.
Diversification Opportunities for Ford and NGL Energy
-0.14 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and NGL is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners 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 NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Ford i.e., Ford and NGL Energy go up and down completely randomly.
Pair Corralation between Ford and NGL Energy
Taking into account the 90-day investment horizon Ford is expected to generate 13.54 times less return on investment than NGL Energy. But when comparing it to its historical volatility, Ford Motor is 1.49 times less risky than NGL Energy. It trades about 0.01 of its potential returns per unit of risk. NGL Energy Partners is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 113.00 in NGL Energy Partners on August 24, 2024 and sell it today you would earn a total of 331.00 from holding NGL Energy Partners or generate 292.92% 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. NGL Energy Partners
Performance |
| Timeline |
| Ford Motor |
| NGL Energy Partners |
Ford and NGL Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and NGL Energy
The main advantage of trading using opposite Ford and NGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, NGL Energy 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 NGL Energy will offset losses from the drop in NGL Energy's long position.The idea behind Ford Motor and NGL Energy Partners 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.| NGL Energy vs. Western Midstream Partners | NGL Energy vs. Williams Companies | NGL Energy vs. Enterprise Products Partners | NGL Energy vs. ONEOK Inc |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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