Correlation Between Ford and Douglas Dynamics
Can any of the company-specific risk be diversified away by investing in both Ford and Douglas Dynamics 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 Douglas Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Douglas Dynamics, you can compare the effects of market volatilities on Ford and Douglas Dynamics 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 Douglas Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Douglas Dynamics.
Diversification Opportunities for Ford and Douglas Dynamics
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Douglas is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Douglas Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Dynamics 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 Douglas Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Dynamics has no effect on the direction of Ford i.e., Ford and Douglas Dynamics go up and down completely randomly.
Pair Corralation between Ford and Douglas Dynamics
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.98 times more return on investment than Douglas Dynamics. However, Ford Motor is 1.02 times less risky than Douglas Dynamics. It trades about 0.03 of its potential returns per unit of risk. Douglas Dynamics is currently generating about 0.01 per unit of risk. If you would invest 969.00 in Ford Motor on August 24, 2024 and sell it today you would earn a total of 111.00 from holding Ford Motor or generate 11.46% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Douglas Dynamics
Performance |
| Timeline |
| Ford Motor |
| Douglas Dynamics |
Ford and Douglas Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Douglas Dynamics
The main advantage of trading using opposite Ford and Douglas Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Douglas Dynamics 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 Douglas Dynamics will offset losses from the drop in Douglas Dynamics' long position.The idea behind Ford Motor and Douglas Dynamics 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.| Douglas Dynamics vs. Monro Muffler Brake | Douglas Dynamics vs. Motorcar Parts of | Douglas Dynamics vs. Standard Motor Products | Douglas Dynamics vs. Stoneridge |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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