Correlation Between Ford and Talen Energy
Can any of the company-specific risk be diversified away by investing in both Ford and Talen Energy 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 Talen Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Talen Energy, you can compare the effects of market volatilities on Ford and Talen Energy 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 Talen Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Talen Energy.
Diversification Opportunities for Ford and Talen Energy
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Talen is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Talen Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talen 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 Talen Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talen Energy has no effect on the direction of Ford i.e., Ford and Talen Energy go up and down completely randomly.
Pair Corralation between Ford and Talen Energy
Taking into account the 90-day investment horizon Ford Motor is expected to under-perform the Talen Energy. But the stock apears to be less risky and, when comparing its historical volatility, Ford Motor is 1.52 times less risky than Talen Energy. The stock trades about 0.0 of its potential returns per unit of risk. The Talen Energy is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 18,307 in Talen Energy on August 24, 2024 and sell it today you would earn a total of 3,682 from holding Talen Energy or generate 20.11% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Talen Energy
Performance |
| Timeline |
| Ford Motor |
| Talen Energy |
Ford and Talen Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Talen Energy
The main advantage of trading using opposite Ford and Talen Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Talen Energy 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 Talen Energy will offset losses from the drop in Talen Energy's long position.The idea behind Ford Motor and Talen 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.| Talen Energy vs. Tesla Inc | Talen Energy vs. Modine Manufacturing | Talen Energy vs. BorgWarner | Talen Energy vs. WiMi Hologram Cloud |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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