Correlation Between Ford and Power Finance
Can any of the company-specific risk be diversified away by investing in both Ford and Power Finance 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 Power Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Power Finance, you can compare the effects of market volatilities on Ford and Power Finance 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 Power Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Power Finance.
Diversification Opportunities for Ford and Power Finance
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and Power is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Power Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Finance 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 Power Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Finance has no effect on the direction of Ford i.e., Ford and Power Finance go up and down completely randomly.
Pair Corralation between Ford and Power Finance
Taking into account the 90-day investment horizon Ford is expected to generate 4.01 times less return on investment than Power Finance. But when comparing it to its historical volatility, Ford Motor is 1.13 times less risky than Power Finance. It trades about 0.04 of its potential returns per unit of risk. Power Finance is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 44,735 in Power Finance on August 28, 2024 and sell it today you would earn a total of 3,415 from holding Power Finance or generate 7.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 86.36% |
| Values | Daily Returns |
Ford Motor vs. Power Finance
Performance |
| Timeline |
| Ford Motor |
| Power Finance |
Ford and Power Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Power Finance
The main advantage of trading using opposite Ford and Power Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Power Finance 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 Power Finance will offset losses from the drop in Power Finance's long position.The idea behind Ford Motor and Power Finance 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.| Power Finance vs. Shemaroo Entertainment Limited | Power Finance vs. Hindustan Media Ventures | Power Finance vs. JGCHEMICALS LIMITED | Power Finance vs. Thirumalai Chemicals Limited |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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