Correlation Between Ford and Nucor Corp
Can any of the company-specific risk be diversified away by investing in both Ford and Nucor Corp 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 Nucor Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Nucor Corp, you can compare the effects of market volatilities on Ford and Nucor Corp 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 Nucor Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Nucor Corp.
Diversification Opportunities for Ford and Nucor Corp
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Ford and Nucor is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp 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 Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of Ford i.e., Ford and Nucor Corp go up and down completely randomly.
Pair Corralation between Ford and Nucor Corp
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Nucor Corp. In addition to that, Ford is 1.66 times more volatile than Nucor Corp. It trades about -0.09 of its total potential returns per unit of risk. Nucor Corp is currently generating about 0.41 per unit of volatility. If you would invest 11,818 in Nucor Corp on November 9, 2024 and sell it today you would earn a total of 1,502 from holding Nucor Corp or generate 12.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Nucor Corp
Performance |
| Timeline |
| Ford Motor |
| Nucor Corp |
Ford and Nucor Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Nucor Corp
The main advantage of trading using opposite Ford and Nucor Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Nucor Corp 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 Nucor Corp will offset losses from the drop in Nucor Corp's long position.The idea behind Ford Motor and Nucor Corp 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.| Nucor Corp vs. United States Steel | Nucor Corp vs. Reliance Steel Aluminum | Nucor Corp vs. ArcelorMittal SA ADR | Nucor Corp vs. Commercial 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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