Correlation Between Ford and Invesco DWA
Can any of the company-specific risk be diversified away by investing in both Ford and Invesco DWA 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 Invesco DWA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Invesco DWA Emerging, you can compare the effects of market volatilities on Ford and Invesco DWA 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 Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Invesco DWA.
Diversification Opportunities for Ford and Invesco DWA
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Invesco is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Invesco DWA Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Emerging 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 Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Emerging has no effect on the direction of Ford i.e., Ford and Invesco DWA go up and down completely randomly.
Pair Corralation between Ford and Invesco DWA
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.45 times more return on investment than Invesco DWA. However, Ford is 2.45 times more volatile than Invesco DWA Emerging. It trades about 0.04 of its potential returns per unit of risk. Invesco DWA Emerging is currently generating about -0.08 per unit of risk. If you would invest 1,122 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Invesco DWA Emerging
Performance |
| Timeline |
| Ford Motor |
| Invesco DWA Emerging |
Ford and Invesco DWA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Invesco DWA
The main advantage of trading using opposite Ford and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Invesco DWA 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 Invesco DWA will offset losses from the drop in Invesco DWA's long position.The idea behind Ford Motor and Invesco DWA Emerging 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.| Invesco DWA vs. Invesco DWA Developed | Invesco DWA vs. Invesco DWA Momentum | Invesco DWA vs. Invesco FTSE RAFI | Invesco DWA vs. Invesco DWA SmallCap |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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