Correlation Between Ford and Revolution Medicines
Can any of the company-specific risk be diversified away by investing in both Ford and Revolution Medicines 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 Revolution Medicines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Revolution Medicines, you can compare the effects of market volatilities on Ford and Revolution Medicines 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 Revolution Medicines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Revolution Medicines.
Diversification Opportunities for Ford and Revolution Medicines
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Revolution is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Revolution Medicines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Revolution Medicines 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 Revolution Medicines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Revolution Medicines has no effect on the direction of Ford i.e., Ford and Revolution Medicines go up and down completely randomly.
Pair Corralation between Ford and Revolution Medicines
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Revolution Medicines. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.45 times less risky than Revolution Medicines. The stock trades about -0.02 of its potential returns per unit of risk. The Revolution Medicines is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 4,156 in Revolution Medicines on November 2, 2024 and sell it today you would earn a total of 151.00 from holding Revolution Medicines or generate 3.63% 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. Revolution Medicines
Performance |
| Timeline |
| Ford Motor |
| Revolution Medicines |
Ford and Revolution Medicines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Revolution Medicines
The main advantage of trading using opposite Ford and Revolution Medicines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Revolution Medicines 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 Revolution Medicines will offset losses from the drop in Revolution Medicines' long position.The idea behind Ford Motor and Revolution Medicines 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.| Revolution Medicines vs. Blueprint Medicines Corp | Revolution Medicines vs. Sana Biotechnology | Revolution Medicines vs. Kymera Therapeutics | Revolution Medicines vs. Monte Rosa Therapeutics |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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