Correlation Between Ford and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both Ford and Prudential Financial 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 Prudential Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Prudential Financial Services, you can compare the effects of market volatilities on Ford and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Prudential Financial.
Diversification Opportunities for Ford and Prudential Financial
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Prudential is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Prudential Financial Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial has no effect on the direction of Ford i.e., Ford and Prudential Financial go up and down completely randomly.
Pair Corralation between Ford and Prudential Financial
Taking into account the 90-day investment horizon Ford is expected to generate 2.22 times less return on investment than Prudential Financial. In addition to that, Ford is 2.41 times more volatile than Prudential Financial Services. It trades about 0.03 of its total potential returns per unit of risk. Prudential Financial Services is currently generating about 0.18 per unit of volatility. If you would invest 1,792 in Prudential Financial Services on August 25, 2024 and sell it today you would earn a total of 918.00 from holding Prudential Financial Services or generate 51.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Prudential Financial Services
Performance |
| Timeline |
| Ford Motor |
| Prudential Financial |
Ford and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Prudential Financial
The main advantage of trading using opposite Ford and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Prudential Financial 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 Prudential Financial will offset losses from the drop in Prudential Financial's long position.The idea behind Ford Motor and Prudential Financial Services 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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