Correlation Between Ford and Steward Large
Can any of the company-specific risk be diversified away by investing in both Ford and Steward Large 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 Steward Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Steward Large Cap, you can compare the effects of market volatilities on Ford and Steward Large 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 Steward Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Steward Large.
Diversification Opportunities for Ford and Steward Large
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Steward is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Steward Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steward Large Cap 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 Steward Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steward Large Cap has no effect on the direction of Ford i.e., Ford and Steward Large go up and down completely randomly.
Pair Corralation between Ford and Steward Large
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Steward Large. In addition to that, Ford is 2.37 times more volatile than Steward Large Cap. It trades about -0.01 of its total potential returns per unit of risk. Steward Large Cap is currently generating about 0.13 per unit of volatility. If you would invest 2,718 in Steward Large Cap on August 29, 2024 and sell it today you would earn a total of 441.00 from holding Steward Large Cap or generate 16.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 35.31% |
| Values | Daily Returns |
Ford Motor vs. Steward Large Cap
Performance |
| Timeline |
| Ford Motor |
| Steward Large Cap |
Ford and Steward Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Steward Large
The main advantage of trading using opposite Ford and Steward Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Steward Large 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 Steward Large will offset losses from the drop in Steward Large's long position.The idea behind Ford Motor and Steward Large Cap 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.| Steward Large vs. Vanguard Total Stock | Steward Large vs. Vanguard 500 Index | Steward Large vs. Vanguard Total Stock | Steward Large vs. Vanguard Total Stock |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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