Correlation Between Ford and Orica
Can any of the company-specific risk be diversified away by investing in both Ford and Orica 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 Orica into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Orica Limited, you can compare the effects of market volatilities on Ford and Orica 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 Orica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Orica.
Diversification Opportunities for Ford and Orica
Good diversification
The 3 months correlation between Ford and Orica is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Orica Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Limited 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 Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Limited has no effect on the direction of Ford i.e., Ford and Orica go up and down completely randomly.
Pair Corralation between Ford and Orica
Taking into account the 90-day investment horizon Ford is expected to generate 3.73 times less return on investment than Orica. In addition to that, Ford is 1.14 times more volatile than Orica Limited. It trades about 0.01 of its total potential returns per unit of risk. Orica Limited is currently generating about 0.05 per unit of volatility. If you would invest 855.00 in Orica Limited on August 26, 2024 and sell it today you would earn a total of 205.00 from holding Orica Limited or generate 23.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 59.96% |
| Values | Daily Returns |
Ford Motor vs. Orica Limited
Performance |
| Timeline |
| Ford Motor |
| Orica Limited |
Ford and Orica Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Orica
The main advantage of trading using opposite Ford and Orica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Orica 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 Orica will offset losses from the drop in Orica's long position.The idea behind Ford Motor and Orica Limited 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.| Orica vs. Johnson Matthey PLC | Orica vs. Flexible Solutions International | Orica vs. Orica Ltd ADR | Orica vs. Iofina plc |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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