Correlation Between Ford and Red River
Can any of the company-specific risk be diversified away by investing in both Ford and Red River 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 Red River into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Red River Bancshares, you can compare the effects of market volatilities on Ford and Red River 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 Red River. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Red River.
Diversification Opportunities for Ford and Red River
Very weak diversification
The 3 months correlation between Ford and Red is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Red River Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red River Bancshares 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 Red River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red River Bancshares has no effect on the direction of Ford i.e., Ford and Red River go up and down completely randomly.
Pair Corralation between Ford and Red River
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Red River. In addition to that, Ford is 1.32 times more volatile than Red River Bancshares. It trades about 0.0 of its total potential returns per unit of risk. Red River Bancshares is currently generating about 0.29 per unit of volatility. If you would invest 5,171 in Red River Bancshares on August 24, 2024 and sell it today you would earn a total of 703.00 from holding Red River Bancshares or generate 13.6% 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. Red River Bancshares
Performance |
| Timeline |
| Ford Motor |
| Red River Bancshares |
Ford and Red River Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Red River
The main advantage of trading using opposite Ford and Red River positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Red River 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 Red River will offset losses from the drop in Red River's long position.The idea behind Ford Motor and Red River Bancshares 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.| Red River vs. Home Federal Bancorp | Red River vs. Magyar Bancorp | Red River vs. Community West Bancshares | Red River vs. Rhinebeck Bancorp |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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