Correlation Between Ford and Snap-on Incorporated
Can any of the company-specific risk be diversified away by investing in both Ford and Snap-on Incorporated 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 Snap-on Incorporated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Snap on Incorporated, you can compare the effects of market volatilities on Ford and Snap-on Incorporated 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 Snap-on Incorporated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Snap-on Incorporated.
Diversification Opportunities for Ford and Snap-on Incorporated
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and Snap-on is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Snap on Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snap-on Incorporated 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 Snap-on Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snap-on Incorporated has no effect on the direction of Ford i.e., Ford and Snap-on Incorporated go up and down completely randomly.
Pair Corralation between Ford and Snap-on Incorporated
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Snap-on Incorporated. In addition to that, Ford is 1.66 times more volatile than Snap on Incorporated. It trades about 0.0 of its total potential returns per unit of risk. Snap on Incorporated is currently generating about 0.08 per unit of volatility. If you would invest 24,052 in Snap on Incorporated on August 31, 2024 and sell it today you would earn a total of 10,848 from holding Snap on Incorporated or generate 45.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.16% |
| Values | Daily Returns |
Ford Motor vs. Snap on Incorporated
Performance |
| Timeline |
| Ford Motor |
| Snap-on Incorporated |
Ford and Snap-on Incorporated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Snap-on Incorporated
The main advantage of trading using opposite Ford and Snap-on Incorporated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Snap-on Incorporated 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 Snap-on Incorporated will offset losses from the drop in Snap-on Incorporated's long position.The idea behind Ford Motor and Snap on Incorporated 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.| Snap-on Incorporated vs. Toro Co | Snap-on Incorporated vs. Lincoln Electric Holdings | Snap-on Incorporated vs. AB SKF | Snap-on Incorporated vs. MISUMI GROUP INC |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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