Correlation Between Ford and Inverse Emerging
Can any of the company-specific risk be diversified away by investing in both Ford and Inverse Emerging 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 Inverse Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Inverse Emerging Markets, you can compare the effects of market volatilities on Ford and Inverse Emerging 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 Inverse Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Inverse Emerging.
Diversification Opportunities for Ford and Inverse Emerging
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Inverse is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Inverse Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inverse Emerging Markets 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 Inverse Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inverse Emerging Markets has no effect on the direction of Ford i.e., Ford and Inverse Emerging go up and down completely randomly.
Pair Corralation between Ford and Inverse Emerging
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.95 times more return on investment than Inverse Emerging. However, Ford Motor is 1.06 times less risky than Inverse Emerging. It trades about -0.02 of its potential returns per unit of risk. Inverse Emerging Markets is currently generating about -0.04 per unit of risk. If you would invest 1,151 in Ford Motor on September 14, 2024 and sell it today you would lose (112.00) from holding Ford Motor or give up 9.73% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Inverse Emerging Markets
Performance |
| Timeline |
| Ford Motor |
| Inverse Emerging Markets |
Ford and Inverse Emerging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Inverse Emerging
The main advantage of trading using opposite Ford and Inverse Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Inverse Emerging 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 Inverse Emerging will offset losses from the drop in Inverse Emerging's long position.The idea behind Ford Motor and Inverse Emerging Markets 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.| Inverse Emerging vs. Basic Materials Fund | Inverse Emerging vs. Basic Materials Fund | Inverse Emerging vs. Banking Fund Class | Inverse Emerging vs. Basic Materials Fund |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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