Correlation Between Ford and Nutrien
Can any of the company-specific risk be diversified away by investing in both Ford and Nutrien 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 Nutrien into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Nutrien, you can compare the effects of market volatilities on Ford and Nutrien 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 Nutrien. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Nutrien.
Diversification Opportunities for Ford and Nutrien
Good diversification
The 3 months correlation between Ford and Nutrien is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Nutrien in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nutrien 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 Nutrien. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nutrien has no effect on the direction of Ford i.e., Ford and Nutrien go up and down completely randomly.
Pair Corralation between Ford and Nutrien
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.56 times more return on investment than Nutrien. However, Ford is 1.56 times more volatile than Nutrien. It trades about 0.01 of its potential returns per unit of risk. Nutrien 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. Nutrien
Performance |
| Timeline |
| Ford Motor |
| Nutrien |
Ford and Nutrien Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Nutrien
The main advantage of trading using opposite Ford and Nutrien positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Nutrien 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 Nutrien will offset losses from the drop in Nutrien's long position.The idea behind Ford Motor and Nutrien 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.| Nutrien vs. CF Industries Holdings | Nutrien vs. Intrepid Potash | Nutrien vs. Corteva | Nutrien vs. ICL Israel Chemicals |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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