Correlation Between Ford and DS Smith
Can any of the company-specific risk be diversified away by investing in both Ford and DS Smith 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 DS Smith into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and DS Smith PLC, you can compare the effects of market volatilities on Ford and DS Smith 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 DS Smith. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and DS Smith.
Diversification Opportunities for Ford and DS Smith
Very weak diversification
The 3 months correlation between Ford and SMDS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and DS Smith PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DS Smith PLC 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 DS Smith. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DS Smith PLC has no effect on the direction of Ford i.e., Ford and DS Smith go up and down completely randomly.
Pair Corralation between Ford and DS Smith
Taking into account the 90-day investment horizon Ford is expected to generate 5.89 times less return on investment than DS Smith. In addition to that, Ford is 1.22 times more volatile than DS Smith PLC. It trades about 0.01 of its total potential returns per unit of risk. DS Smith PLC is currently generating about 0.08 per unit of volatility. If you would invest 29,487 in DS Smith PLC on August 30, 2024 and sell it today you would earn a total of 28,713 from holding DS Smith PLC or generate 97.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Ford Motor vs. DS Smith PLC
Performance |
| Timeline |
| Ford Motor |
| DS Smith PLC |
Ford and DS Smith Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and DS Smith
The main advantage of trading using opposite Ford and DS Smith positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, DS Smith 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 DS Smith will offset losses from the drop in DS Smith's long position.The idea behind Ford Motor and DS Smith PLC 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.| DS Smith vs. Norwegian Air Shuttle | DS Smith vs. Impax Environmental Markets | DS Smith vs. Aeorema Communications Plc | DS Smith vs. Cellnex Telecom SA |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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