Correlation Between Ford and Teekay Tankers
Can any of the company-specific risk be diversified away by investing in both Ford and Teekay Tankers 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 Teekay Tankers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Teekay Tankers, you can compare the effects of market volatilities on Ford and Teekay Tankers 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 Teekay Tankers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Teekay Tankers.
Diversification Opportunities for Ford and Teekay Tankers
-0.37 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Teekay is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Teekay Tankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teekay Tankers 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 Teekay Tankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teekay Tankers has no effect on the direction of Ford i.e., Ford and Teekay Tankers go up and down completely randomly.
Pair Corralation between Ford and Teekay Tankers
Taking into account the 90-day investment horizon Ford Motor is expected to generate 2.09 times more return on investment than Teekay Tankers. However, Ford is 2.09 times more volatile than Teekay Tankers. It trades about 0.04 of its potential returns per unit of risk. Teekay Tankers is currently generating about -0.6 per unit of risk. If you would invest 1,122 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Ford Motor or generate 1.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Teekay Tankers
Performance |
| Timeline |
| Ford Motor |
| Teekay Tankers |
Ford and Teekay Tankers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Teekay Tankers
The main advantage of trading using opposite Ford and Teekay Tankers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Teekay Tankers 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 Teekay Tankers will offset losses from the drop in Teekay Tankers' long position.The idea behind Ford Motor and Teekay Tankers 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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