Correlation Between Ford and Shopify
Can any of the company-specific risk be diversified away by investing in both Ford and Shopify 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 Shopify into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Shopify, you can compare the effects of market volatilities on Ford and Shopify 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 Shopify. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Shopify.
Diversification Opportunities for Ford and Shopify
Very weak diversification
The 3 months correlation between Ford and Shopify is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Shopify in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shopify 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 Shopify. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shopify has no effect on the direction of Ford i.e., Ford and Shopify go up and down completely randomly.
Pair Corralation between Ford and Shopify
Taking into account the 90-day investment horizon Ford is expected to generate 23.27 times less return on investment than Shopify. But when comparing it to its historical volatility, Ford Motor is 1.55 times less risky than Shopify. It trades about 0.0 of its potential returns per unit of risk. Shopify is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,306 in Shopify on August 23, 2024 and sell it today you would earn a total of 6,342 from holding Shopify or generate 147.28% 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. Shopify
Performance |
| Timeline |
| Ford Motor |
| Shopify |
Ford and Shopify Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Shopify
The main advantage of trading using opposite Ford and Shopify positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Shopify 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 Shopify will offset losses from the drop in Shopify's long position.The idea behind Ford Motor and Shopify 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.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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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