Correlation Between Ford and PulteGroup
Can any of the company-specific risk be diversified away by investing in both Ford and PulteGroup 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 PulteGroup into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and PulteGroup, you can compare the effects of market volatilities on Ford and PulteGroup 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 PulteGroup. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and PulteGroup.
Diversification Opportunities for Ford and PulteGroup
-0.17 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and PulteGroup is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and PulteGroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PulteGroup 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 PulteGroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PulteGroup has no effect on the direction of Ford i.e., Ford and PulteGroup go up and down completely randomly.
Pair Corralation between Ford and PulteGroup
Taking into account the 90-day investment horizon Ford is expected to generate 1.36 times less return on investment than PulteGroup. In addition to that, Ford is 1.31 times more volatile than PulteGroup. It trades about 0.04 of its total potential returns per unit of risk. PulteGroup is currently generating about 0.07 per unit of volatility. If you would invest 13,388 in PulteGroup on August 28, 2024 and sell it today you would earn a total of 377.00 from holding PulteGroup or generate 2.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. PulteGroup
Performance |
| Timeline |
| Ford Motor |
| PulteGroup |
Ford and PulteGroup Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and PulteGroup
The main advantage of trading using opposite Ford and PulteGroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, PulteGroup 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 PulteGroup will offset losses from the drop in PulteGroup's long position.The idea behind Ford Motor and PulteGroup 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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