Correlation Between Ford and RS Public
Can any of the company-specific risk be diversified away by investing in both Ford and RS Public 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 RS Public into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and RS Public, you can compare the effects of market volatilities on Ford and RS Public 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 RS Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and RS Public.
Diversification Opportunities for Ford and RS Public
Good diversification
The 3 months correlation between Ford and RS Public is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and RS Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RS Public 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 RS Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RS Public has no effect on the direction of Ford i.e., Ford and RS Public go up and down completely randomly.
Pair Corralation between Ford and RS Public
Taking into account the 90-day investment horizon Ford is expected to generate 63.64 times less return on investment than RS Public. But when comparing it to its historical volatility, Ford Motor is 27.48 times less risky than RS Public. It trades about 0.02 of its potential returns per unit of risk. RS Public is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 670.00 in RS Public on September 14, 2024 and sell it today you would lose (95.00) from holding RS Public or give up 14.18% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 96.28% |
| Values | Daily Returns |
Ford Motor vs. RS Public
Performance |
| Timeline |
| Ford Motor |
| RS Public |
Ford and RS Public Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and RS Public
The main advantage of trading using opposite Ford and RS Public positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, RS Public 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 RS Public will offset losses from the drop in RS Public's long position.The idea behind Ford Motor and RS Public 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.| RS Public vs. Synnex Public | RS Public vs. SVI Public | RS Public vs. Interlink Communication Public | RS Public vs. The Erawan Group |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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