Correlation Between Ford and American Beacon
Can any of the company-specific risk be diversified away by investing in both Ford and American Beacon 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 American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and American Beacon Stephens, you can compare the effects of market volatilities on Ford and American Beacon 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 American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and American Beacon.
Diversification Opportunities for Ford and American Beacon
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Ford and American is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and American Beacon Stephens in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Stephens 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 American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Stephens has no effect on the direction of Ford i.e., Ford and American Beacon go up and down completely randomly.
Pair Corralation between Ford and American Beacon
Taking into account the 90-day investment horizon Ford is expected to generate 2.98 times less return on investment than American Beacon. In addition to that, Ford is 2.15 times more volatile than American Beacon Stephens. It trades about 0.01 of its total potential returns per unit of risk. American Beacon Stephens is currently generating about 0.08 per unit of volatility. If you would invest 1,215 in American Beacon Stephens on August 30, 2024 and sell it today you would earn a total of 472.00 from holding American Beacon Stephens or generate 38.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. American Beacon Stephens
Performance |
| Timeline |
| Ford Motor |
| American Beacon Stephens |
Ford and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and American Beacon
The main advantage of trading using opposite Ford and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.The idea behind Ford Motor and American Beacon Stephens 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.| American Beacon vs. Ab Select Longshort | American Beacon vs. Calvert Short Duration | American Beacon vs. Maryland Short Term Tax Free | American Beacon vs. Aqr Long Short Equity |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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