Correlation Between Ford and Financial Services
Can any of the company-specific risk be diversified away by investing in both Ford and Financial Services 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 Financial Services into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Financial Services Fund, you can compare the effects of market volatilities on Ford and Financial Services 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 Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Financial Services.
Diversification Opportunities for Ford and Financial Services
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ford and Financial is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Financial Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Ford i.e., Ford and Financial Services go up and down completely randomly.
Pair Corralation between Ford and Financial Services
Taking into account the 90-day investment horizon Ford is expected to generate 4.86 times less return on investment than Financial Services. In addition to that, Ford is 2.55 times more volatile than Financial Services Fund. It trades about 0.01 of its total potential returns per unit of risk. Financial Services Fund is currently generating about 0.14 per unit of volatility. If you would invest 7,012 in Financial Services Fund on August 29, 2024 and sell it today you would earn a total of 3,428 from holding Financial Services Fund or generate 48.89% 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. Financial Services Fund
Performance |
| Timeline |
| Ford Motor |
| Financial Services |
Ford and Financial Services Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Financial Services
The main advantage of trading using opposite Ford and Financial Services positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Financial Services 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 Financial Services will offset losses from the drop in Financial Services' long position.The idea behind Ford Motor and Financial Services Fund 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.| Financial Services vs. Health Care Fund | Financial Services vs. Banking Fund Investor | Financial Services vs. Technology Fund Investor | Financial Services vs. Transportation Fund Investor |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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