Correlation Between Ford and PAX Global
Can any of the company-specific risk be diversified away by investing in both Ford and PAX Global 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 PAX Global into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and PAX Global Technology, you can compare the effects of market volatilities on Ford and PAX Global 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 PAX Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and PAX Global.
Diversification Opportunities for Ford and PAX Global
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Ford and PAX is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and PAX Global Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PAX Global Technology 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 PAX Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PAX Global Technology has no effect on the direction of Ford i.e., Ford and PAX Global go up and down completely randomly.
Pair Corralation between Ford and PAX Global
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.15 times more return on investment than PAX Global. However, Ford is 1.15 times more volatile than PAX Global Technology. It trades about 0.25 of its potential returns per unit of risk. PAX Global Technology is currently generating about -0.2 per unit of risk. If you would invest 1,008 in Ford Motor on September 2, 2024 and sell it today you would earn a total of 105.00 from holding Ford Motor or generate 10.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Ford Motor vs. PAX Global Technology
Performance |
| Timeline |
| Ford Motor |
| PAX Global Technology |
Ford and PAX Global Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and PAX Global
The main advantage of trading using opposite Ford and PAX Global positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, PAX Global 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 PAX Global will offset losses from the drop in PAX Global's long position.The idea behind Ford Motor and PAX Global Technology 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.| PAX Global vs. Ricoh Company | PAX Global vs. FactSet Research Systems | PAX Global vs. Palantir Technologies Class | PAX Global vs. Barnes Group |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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