Correlation Between Ford and SWFTC
Can any of the company-specific risk be diversified away by investing in both Ford and SWFTC 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 SWFTC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and SWFTC, you can compare the effects of market volatilities on Ford and SWFTC 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 SWFTC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and SWFTC.
Diversification Opportunities for Ford and SWFTC
Average diversification
The 3 months correlation between Ford and SWFTC is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and SWFTC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SWFTC 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 SWFTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SWFTC has no effect on the direction of Ford i.e., Ford and SWFTC go up and down completely randomly.
Pair Corralation between Ford and SWFTC
Taking into account the 90-day investment horizon Ford is expected to generate 53.58 times less return on investment than SWFTC. But when comparing it to its historical volatility, Ford Motor is 2.91 times less risky than SWFTC. It trades about 0.01 of its potential returns per unit of risk. SWFTC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 0.31 in SWFTC on August 27, 2024 and sell it today you would earn a total of 0.05 from holding SWFTC or generate 16.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. SWFTC
Performance |
| Timeline |
| Ford Motor |
| SWFTC |
Ford and SWFTC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and SWFTC
The main advantage of trading using opposite Ford and SWFTC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, SWFTC 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 SWFTC will offset losses from the drop in SWFTC's long position.The idea behind Ford Motor and SWFTC 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 Global Correlations module to find global opportunities by holding instruments from different markets.
Other Complementary Tools
| Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
| ETFs Find actively traded Exchange Traded Funds (ETF) from around the world | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA |