Correlation Between Ford and SSE PLC
Can any of the company-specific risk be diversified away by investing in both Ford and SSE PLC 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 SSE PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and SSE PLC ADR, you can compare the effects of market volatilities on Ford and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and SSE PLC.
Diversification Opportunities for Ford and SSE PLC
Very good diversification
The 3 months correlation between Ford and SSE is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of Ford i.e., Ford and SSE PLC go up and down completely randomly.
Pair Corralation between Ford and SSE PLC
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.75 times more return on investment than SSE PLC. However, Ford is 1.75 times more volatile than SSE PLC ADR. It trades about 0.18 of its potential returns per unit of risk. SSE PLC ADR is currently generating about -0.06 per unit of risk. If you would invest 1,022 in Ford Motor on September 4, 2024 and sell it today you would earn a total of 76.00 from holding Ford Motor or generate 7.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. SSE PLC ADR
Performance |
| Timeline |
| Ford Motor |
| SSE PLC ADR |
Ford and SSE PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and SSE PLC
The main advantage of trading using opposite Ford and SSE PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, SSE PLC 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 SSE PLC will offset losses from the drop in SSE PLC's long position.The idea behind Ford Motor and SSE PLC ADR 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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