Correlation Between Ford and SP 500
Can any of the company-specific risk be diversified away by investing in both Ford and SP 500 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 SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and SP 500 Energy, you can compare the effects of market volatilities on Ford and SP 500 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 SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and SP 500.
Diversification Opportunities for Ford and SP 500
Very weak diversification
The 3 months correlation between Ford and SPNY is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SP 500 Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Energy 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 SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Energy has no effect on the direction of Ford i.e., Ford and SP 500 go up and down completely randomly.
Pair Corralation between Ford and SP 500
Taking into account the 90-day investment horizon Ford is expected to generate 1.41 times less return on investment than SP 500. In addition to that, Ford is 1.76 times more volatile than SP 500 Energy. It trades about 0.01 of its total potential returns per unit of risk. SP 500 Energy is currently generating about 0.02 per unit of volatility. If you would invest 64,512 in SP 500 Energy on September 2, 2024 and sell it today you would earn a total of 7,894 from holding SP 500 Energy or generate 12.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Ford Motor vs. SP 500 Energy
Performance |
| Timeline |
Ford and SP 500 Volatility Contrast
Predicted Return Density |
| Returns |
Ford Motor
Pair trading matchups for Ford
SP 500 Energy
Pair trading matchups for SP 500
Pair Trading with Ford and SP 500
The main advantage of trading using opposite Ford and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.The idea behind Ford Motor and SP 500 Energy 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.| SP 500 vs. Guangdong Investment Limited | SP 500 vs. Link Real Estate | SP 500 vs. Hudson Pacific Properties | SP 500 vs. Crombie Real Estate |
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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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