Correlation Between Ford and Rock Tech
Can any of the company-specific risk be diversified away by investing in both Ford and Rock Tech 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 Rock Tech into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Rock Tech Lithium, you can compare the effects of market volatilities on Ford and Rock Tech 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 Rock Tech. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Rock Tech.
Diversification Opportunities for Ford and Rock Tech
Very good diversification
The 3 months correlation between Ford and Rock is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Rock Tech Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rock Tech Lithium 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 Rock Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rock Tech Lithium has no effect on the direction of Ford i.e., Ford and Rock Tech go up and down completely randomly.
Pair Corralation between Ford and Rock Tech
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Rock Tech. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 2.23 times less risky than Rock Tech. The stock trades about -0.01 of its potential returns per unit of risk. The Rock Tech Lithium is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 125.00 in Rock Tech Lithium on November 9, 2024 and sell it today you would lose (8.00) from holding Rock Tech Lithium or give up 6.4% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.26% |
| Values | Daily Returns |
Ford Motor vs. Rock Tech Lithium
Performance |
| Timeline |
| Ford Motor |
| Rock Tech Lithium |
Ford and Rock Tech Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Rock Tech
The main advantage of trading using opposite Ford and Rock Tech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Rock Tech 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 Rock Tech will offset losses from the drop in Rock Tech's long position.The idea behind Ford Motor and Rock Tech Lithium 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.| Rock Tech vs. American Lithium Corp | Rock Tech vs. Pure Energy Minerals | Rock Tech vs. Frontier Lithium | Rock Tech vs. Wealth Minerals |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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