Correlation Between Ford and First Trust
Can any of the company-specific risk be diversified away by investing in both Ford and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and First Trust Small, you can compare the effects of market volatilities on Ford and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and First Trust.
Diversification Opportunities for Ford and First Trust
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and First is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and First Trust Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Small 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Small has no effect on the direction of Ford i.e., Ford and First Trust go up and down completely randomly.
Pair Corralation between Ford and First Trust
Taking into account the 90-day investment horizon Ford is expected to generate 1.15 times less return on investment than First Trust. In addition to that, Ford is 1.15 times more volatile than First Trust Small. It trades about 0.17 of its total potential returns per unit of risk. First Trust Small is currently generating about 0.23 per unit of volatility. If you would invest 2,977 in First Trust Small on August 31, 2024 and sell it today you would earn a total of 261.00 from holding First Trust Small or generate 8.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. First Trust Small
Performance |
| Timeline |
| Ford Motor |
| First Trust Small |
Ford and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and First Trust
The main advantage of trading using opposite Ford and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.The idea behind Ford Motor and First Trust Small 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.| First Trust vs. Schwab Fundamental Large | First Trust vs. Schwab Fundamental International | First Trust vs. Schwab Fundamental International | First Trust vs. Schwab Fundamental Emerging |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
Other Complementary Tools
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Pattern Recognition Use different Pattern Recognition models to time the market across multiple global exchanges | |
| Stocks Directory Find actively traded stocks across global markets |