Correlation Between Ford and POCC
Can any of the company-specific risk be diversified away by investing in both Ford and POCC 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 POCC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and POCC, you can compare the effects of market volatilities on Ford and POCC 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 POCC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and POCC.
Diversification Opportunities for Ford and POCC
Weak diversification
The 3 months correlation between Ford and POCC is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and POCC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POCC 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 POCC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POCC has no effect on the direction of Ford i.e., Ford and POCC go up and down completely randomly.
Pair Corralation between Ford and POCC
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the POCC. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.21 times less risky than POCC. The stock trades about -0.14 of its potential returns per unit of risk. The POCC is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 0.02 in POCC on November 8, 2024 and sell it today you would lose 0.00 from holding POCC or give up 13.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 93.75% |
| Values | Daily Returns |
Ford Motor vs. POCC
Performance |
| Timeline |
| Ford Motor |
| POCC |
Ford and POCC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and POCC
The main advantage of trading using opposite Ford and POCC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, POCC 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 POCC will offset losses from the drop in POCC's long position.The idea behind Ford Motor and POCC 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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