Correlation Between Ford and Guggenheim Alpha
Can any of the company-specific risk be diversified away by investing in both Ford and Guggenheim Alpha 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 Guggenheim Alpha into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Guggenheim Alpha Opportunity, you can compare the effects of market volatilities on Ford and Guggenheim Alpha 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 Guggenheim Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Guggenheim Alpha.
Diversification Opportunities for Ford and Guggenheim Alpha
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Guggenheim is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Guggenheim Alpha Opportunity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guggenheim Alpha Opp 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 Guggenheim Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guggenheim Alpha Opp has no effect on the direction of Ford i.e., Ford and Guggenheim Alpha go up and down completely randomly.
Pair Corralation between Ford and Guggenheim Alpha
Taking into account the 90-day investment horizon Ford is expected to generate 1.88 times less return on investment than Guggenheim Alpha. In addition to that, Ford is 4.4 times more volatile than Guggenheim Alpha Opportunity. It trades about 0.01 of its total potential returns per unit of risk. Guggenheim Alpha Opportunity is currently generating about 0.09 per unit of volatility. If you would invest 1,574 in Guggenheim Alpha Opportunity on August 26, 2024 and sell it today you would earn a total of 389.00 from holding Guggenheim Alpha Opportunity or generate 24.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Guggenheim Alpha Opportunity
Performance |
| Timeline |
| Ford Motor |
| Guggenheim Alpha Opp |
Ford and Guggenheim Alpha Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Guggenheim Alpha
The main advantage of trading using opposite Ford and Guggenheim Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Guggenheim Alpha 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 Guggenheim Alpha will offset losses from the drop in Guggenheim Alpha's long position.The idea behind Ford Motor and Guggenheim Alpha Opportunity 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.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Guggenheim Alpha as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Guggenheim Alpha's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Guggenheim Alpha's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Guggenheim Alpha Opportunity.
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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