Correlation Between Ford and Southern Petrochemicals
Can any of the company-specific risk be diversified away by investing in both Ford and Southern Petrochemicals 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 Southern Petrochemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Southern Petrochemicals Industries, you can compare the effects of market volatilities on Ford and Southern Petrochemicals 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 Southern Petrochemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Southern Petrochemicals.
Diversification Opportunities for Ford and Southern Petrochemicals
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Southern is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals 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 Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Ford i.e., Ford and Southern Petrochemicals go up and down completely randomly.
Pair Corralation between Ford and Southern Petrochemicals
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Southern Petrochemicals. In addition to that, Ford is 1.15 times more volatile than Southern Petrochemicals Industries. It trades about -0.09 of its total potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about -0.02 per unit of volatility. If you would invest 8,192 in Southern Petrochemicals Industries on September 21, 2024 and sell it today you would lose (561.00) from holding Southern Petrochemicals Industries or give up 6.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.13% |
| Values | Daily Returns |
Ford Motor vs. Southern Petrochemicals Indust
Performance |
| Timeline |
| Ford Motor |
| Southern Petrochemicals |
Ford and Southern Petrochemicals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Southern Petrochemicals
The main advantage of trading using opposite Ford and Southern Petrochemicals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Southern Petrochemicals 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 Southern Petrochemicals will offset losses from the drop in Southern Petrochemicals' long position.The idea behind Ford Motor and Southern Petrochemicals Industries 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.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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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