Correlation Between Ford and RENN Fund
Can any of the company-specific risk be diversified away by investing in both Ford and RENN Fund 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 RENN Fund into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and RENN Fund, you can compare the effects of market volatilities on Ford and RENN Fund 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 RENN Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and RENN Fund.
Diversification Opportunities for Ford and RENN Fund
Very weak diversification
The 3 months correlation between Ford and RENN is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and RENN Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RENN Fund 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 RENN Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RENN Fund has no effect on the direction of Ford i.e., Ford and RENN Fund go up and down completely randomly.
Pair Corralation between Ford and RENN Fund
Taking into account the 90-day investment horizon Ford is expected to generate 3.2 times less return on investment than RENN Fund. But when comparing it to its historical volatility, Ford Motor is 2.27 times less risky than RENN Fund. It trades about 0.18 of its potential returns per unit of risk. RENN Fund is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 220.00 in RENN Fund on August 31, 2024 and sell it today you would earn a total of 57.00 from holding RENN Fund or generate 25.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. RENN Fund
Performance |
| Timeline |
| Ford Motor |
| RENN Fund |
Ford and RENN Fund Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and RENN Fund
The main advantage of trading using opposite Ford and RENN Fund positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, RENN Fund 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 RENN Fund will offset losses from the drop in RENN Fund's long position.The idea behind Ford Motor and RENN Fund 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.| RENN Fund vs. Ellsworth Convertible Growth | RENN Fund vs. Delaware Investments Florida | RENN Fund vs. Nuveen New Jersey | RENN Fund vs. John Hancock Hedged |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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