Correlation Between Ford and Peabody Energy
Can any of the company-specific risk be diversified away by investing in both Ford and Peabody 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 Peabody 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 Peabody Energy, you can compare the effects of market volatilities on Ford and Peabody 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 Peabody Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Peabody Energy.
Diversification Opportunities for Ford and Peabody Energy
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Peabody is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Peabody Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy 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 Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy has no effect on the direction of Ford i.e., Ford and Peabody Energy go up and down completely randomly.
Pair Corralation between Ford and Peabody Energy
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.7 times more return on investment than Peabody Energy. However, Ford Motor is 1.43 times less risky than Peabody Energy. It trades about 0.18 of its potential returns per unit of risk. Peabody Energy is currently generating about -0.07 per unit of risk. If you would invest 1,022 in Ford Motor on September 4, 2024 and sell it today you would earn a total of 76.00 from holding Ford Motor or generate 7.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. Peabody Energy
Performance |
| Timeline |
| Ford Motor |
| Peabody Energy |
Ford and Peabody Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Peabody Energy
The main advantage of trading using opposite Ford and Peabody Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Peabody 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 Peabody Energy will offset losses from the drop in Peabody Energy's long position.The idea behind Ford Motor and Peabody Energy 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.| Peabody Energy vs. PT Bayan Resources | Peabody Energy vs. Yanzhou Coal Mining | Peabody Energy vs. Yanzhou Coal Mining | Peabody Energy vs. PT Adaro Energy |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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