Correlation Between Ford and Pan African
Can any of the company-specific risk be diversified away by investing in both Ford and Pan African 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 Pan African into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Pan African Resources, you can compare the effects of market volatilities on Ford and Pan African 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 Pan African. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Pan African.
Diversification Opportunities for Ford and Pan African
0.16 | Correlation Coefficient |
Average diversification
The 3 months correlation between Ford and Pan is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Pan African Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pan African Resources 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 Pan African. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pan African Resources has no effect on the direction of Ford i.e., Ford and Pan African go up and down completely randomly.
Pair Corralation between Ford and Pan African
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Pan African. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.14 times less risky than Pan African. The stock trades about 0.0 of its potential returns per unit of risk. The Pan African Resources is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 31,500 in Pan African Resources on September 1, 2024 and sell it today you would earn a total of 49,700 from holding Pan African Resources or generate 157.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.73% |
| Values | Daily Returns |
Ford Motor vs. Pan African Resources
Performance |
| Timeline |
| Ford Motor |
| Pan African Resources |
Ford and Pan African Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Pan African
The main advantage of trading using opposite Ford and Pan African positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Pan African 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 Pan African will offset losses from the drop in Pan African's long position.The idea behind Ford Motor and Pan African Resources 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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