Correlation Between Ford and Sinar Mas
Can any of the company-specific risk be diversified away by investing in both Ford and Sinar Mas 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 Sinar Mas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Sinar Mas Agro, you can compare the effects of market volatilities on Ford and Sinar Mas 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 Sinar Mas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Sinar Mas.
Diversification Opportunities for Ford and Sinar Mas
Significant diversification
The 3 months correlation between Ford and Sinar is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Sinar Mas Agro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinar Mas Agro 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 Sinar Mas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinar Mas Agro has no effect on the direction of Ford i.e., Ford and Sinar Mas go up and down completely randomly.
Pair Corralation between Ford and Sinar Mas
Taking into account the 90-day investment horizon Ford Motor is expected to generate 0.94 times more return on investment than Sinar Mas. However, Ford Motor is 1.06 times less risky than Sinar Mas. It trades about 0.17 of its potential returns per unit of risk. Sinar Mas Agro is currently generating about -0.08 per unit of risk. If you would invest 1,033 in Ford Motor on August 31, 2024 and sell it today you would earn a total of 77.00 from holding Ford Motor or generate 7.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Sinar Mas Agro
Performance |
| Timeline |
| Ford Motor |
| Sinar Mas Agro |
Ford and Sinar Mas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Sinar Mas
The main advantage of trading using opposite Ford and Sinar Mas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Sinar Mas 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 Sinar Mas will offset losses from the drop in Sinar Mas' long position.The idea behind Ford Motor and Sinar Mas Agro 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.| Sinar Mas vs. Sampoerna Agro Tbk | Sinar Mas vs. Tunas Baru Lampung | Sinar Mas vs. Perusahaan Perkebunan London | Sinar Mas vs. Bakrie Sumatera Plantations |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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