Correlation Between Ford and Companhia
Can any of the company-specific risk be diversified away by investing in both Ford and Companhia 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 Companhia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Companhia de Saneamento, you can compare the effects of market volatilities on Ford and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Companhia.
Diversification Opportunities for Ford and Companhia
Weak diversification
The 3 months correlation between Ford and Companhia is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of Ford i.e., Ford and Companhia go up and down completely randomly.
Pair Corralation between Ford and Companhia
Taking into account the 90-day investment horizon Ford is expected to generate 3.59 times less return on investment than Companhia. In addition to that, Ford is 1.26 times more volatile than Companhia de Saneamento. It trades about 0.01 of its total potential returns per unit of risk. Companhia de Saneamento is currently generating about 0.04 per unit of volatility. If you would invest 1,432 in Companhia de Saneamento on August 29, 2024 and sell it today you would earn a total of 178.00 from holding Companhia de Saneamento or generate 12.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.05% |
| Values | Daily Returns |
Ford Motor vs. Companhia de Saneamento
Performance |
| Timeline |
| Ford Motor |
| Companhia de Saneamento |
Ford and Companhia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Companhia
The main advantage of trading using opposite Ford and Companhia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Companhia 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 Companhia will offset losses from the drop in Companhia's long position.The idea behind Ford Motor and Companhia de Saneamento 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.| Companhia vs. KINGBOARD CHEMICAL | Companhia vs. CHEMICAL INDUSTRIES | Companhia vs. ASURE SOFTWARE | Companhia vs. Sanyo Chemical Industries |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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