Correlation Between Ford and Standard
Can any of the company-specific risk be diversified away by investing in both Ford and Standard 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 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 Motor Products, you can compare the effects of market volatilities on Ford and Standard 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Standard.
Diversification Opportunities for Ford and Standard
Average diversification
The 3 months correlation between Ford and Standard is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Standard Motor Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Motor Products 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. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Motor Products has no effect on the direction of Ford i.e., Ford and Standard go up and down completely randomly.
Pair Corralation between Ford and Standard
Taking into account the 90-day investment horizon Ford is expected to generate 35.8 times less return on investment than Standard. But when comparing it to its historical volatility, Ford Motor is 1.77 times less risky than Standard. It trades about 0.01 of its potential returns per unit of risk. Standard Motor Products is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 2,936 in Standard Motor Products on August 27, 2024 and sell it today you would earn a total of 378.00 from holding Standard Motor Products or generate 12.87% 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. Standard Motor Products
Performance |
| Timeline |
| Ford Motor |
| Standard Motor Products |
Ford and Standard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Standard
The main advantage of trading using opposite Ford and Standard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Standard 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 will offset losses from the drop in Standard's long position.The idea behind Ford Motor and Standard Motor Products 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 vs. Dorman Products | Standard vs. Motorcar Parts of | Standard vs. Douglas Dynamics | Standard vs. Stoneridge |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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