Correlation Between Ford and Standard Lithium
Can any of the company-specific risk be diversified away by investing in both Ford and Standard Lithium 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 Standard Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Standard Lithium, you can compare the effects of market volatilities on Ford and Standard Lithium 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 Standard Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Standard Lithium.
Diversification Opportunities for Ford and Standard Lithium
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Standard is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Standard Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Lithium 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 Standard Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Lithium has no effect on the direction of Ford i.e., Ford and Standard Lithium go up and down completely randomly.
Pair Corralation between Ford and Standard Lithium
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.51 times more return on investment than Standard Lithium. However, Ford Motor is 1.96 times less risky than Standard Lithium. It trades about 0.0 of its potential returns per unit of risk. Standard Lithium is currently generating about -0.19 per unit of risk. If you would invest 1,091 in Ford Motor on August 24, 2024 and sell it today you would lose (11.00) from holding Ford Motor or give up 1.01% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Ford Motor vs. Standard Lithium
Performance |
| Timeline |
| Ford Motor |
| Standard Lithium |
Ford and Standard Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Standard Lithium
The main advantage of trading using opposite Ford and Standard Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Standard Lithium 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 Standard Lithium will offset losses from the drop in Standard Lithium's long position.The idea behind Ford Motor and Standard Lithium 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.| Standard Lithium vs. Lithium Americas Corp | Standard Lithium vs. Piedmont Lithium Ltd | Standard Lithium vs. NioCorp Developments Ltd | Standard Lithium vs. Teck Resources Ltd |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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