Correlation Between Ford and UPM-Kymmene Oyj
Can any of the company-specific risk be diversified away by investing in both Ford and UPM-Kymmene Oyj 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 UPM-Kymmene Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and UPM Kymmene Oyj, you can compare the effects of market volatilities on Ford and UPM-Kymmene Oyj 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 UPM-Kymmene Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and UPM-Kymmene Oyj.
Diversification Opportunities for Ford and UPM-Kymmene Oyj
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and UPM-Kymmene is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and UPM Kymmene Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPM Kymmene Oyj 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 UPM-Kymmene Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPM Kymmene Oyj has no effect on the direction of Ford i.e., Ford and UPM-Kymmene Oyj go up and down completely randomly.
Pair Corralation between Ford and UPM-Kymmene Oyj
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.19 times more return on investment than UPM-Kymmene Oyj. However, Ford is 2.19 times more volatile than UPM Kymmene Oyj. It trades about 0.04 of its potential returns per unit of risk. UPM Kymmene Oyj is currently generating about -0.44 per unit of risk. If you would invest 1,122 in Ford Motor on August 27, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. UPM Kymmene Oyj
Performance |
| Timeline |
| Ford Motor |
| UPM Kymmene Oyj |
Ford and UPM-Kymmene Oyj Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and UPM-Kymmene Oyj
The main advantage of trading using opposite Ford and UPM-Kymmene Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, UPM-Kymmene Oyj 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 UPM-Kymmene Oyj will offset losses from the drop in UPM-Kymmene Oyj's long position.The idea behind Ford Motor and UPM Kymmene Oyj 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.| UPM-Kymmene Oyj vs. STORA ENSO OYJ | UPM-Kymmene Oyj vs. Stora Enso Oyj | UPM-Kymmene Oyj vs. Suzano SA | UPM-Kymmene Oyj vs. Oji Holdings |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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