Correlation Between Ford and Ross Stores
Can any of the company-specific risk be diversified away by investing in both Ford and Ross Stores 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 Ross Stores into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Ross Stores, you can compare the effects of market volatilities on Ford and Ross Stores 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Ross Stores.
Diversification Opportunities for Ford and Ross Stores
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Ross is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Ford i.e., Ford and Ross Stores go up and down completely randomly.
Pair Corralation between Ford and Ross Stores
Taking into account the 90-day investment horizon Ford is expected to generate 2.24 times less return on investment than Ross Stores. In addition to that, Ford is 1.59 times more volatile than Ross Stores. It trades about 0.03 of its total potential returns per unit of risk. Ross Stores is currently generating about 0.11 per unit of volatility. If you would invest 32,687 in Ross Stores on August 29, 2024 and sell it today you would earn a total of 13,123 from holding Ross Stores or generate 40.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 93.17% |
| Values | Daily Returns |
Ford Motor vs. Ross Stores
Performance |
| Timeline |
| Ford Motor |
| Ross Stores |
Ford and Ross Stores Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Ross Stores
The main advantage of trading using opposite Ford and Ross Stores positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Ross Stores 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 Ross Stores will offset losses from the drop in Ross Stores' long position.The idea behind Ford Motor and Ross Stores 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.| Ross Stores vs. BTG Pactual Logstica | Ross Stores vs. Plano Plano Desenvolvimento | Ross Stores vs. The Procter Gamble | Ross Stores vs. Cable One |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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